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Worker Classification

Worker Classification

By Ed Scott

Gearing Up | June 2019
Saturday, June 1, 2019

At the USPA Drop Zone Operators’ Conference this year, attendees heard from presenter Jeanice Dolan, a CPA and DZO of Ocean City Skydiving Center in Maryland, about a growing enforcement issue that is changing the landscape for DZs: worker classification. Increasingly, state and federal departments of labor are auditing businesses—including DZs—to determine whether they are correctly classifying workers as either employees or contractors. Two things are driving this government scrutiny: 1) a growing gig economy where businesses classify their workers as contractors and 2) governments’ need for tax revenues.

Over the past few years, a number of DZs have been audited and found in violation of state and/or federal labor laws. In most cases, government auditors determined that the DZ owners improperly classified some of their workers as contractors when they should have classified them as employees. DZ owners were subjected to back payment of seven years’ worth of federal and state unemployment and payroll taxes (Social Security and Medicare) totaling tens and hundreds of thousands of dollars.

In addition, because employers are ultimately responsible for work-related injuries, most states require most business owners to carry workers’ compensation insurance for each employee. Workers’ comp insurance rates are based on job classification and vary widely among states. Premium rates for flying and non-flying crew range between three and 40 percent of payroll. If a state finds that a DZ owner has not paid these premiums for workers it deems employees, the owner is subject to criminal penalties, including fines and jail. If the finding follows an accident involving injury, the DZO is required to cover all medical expenses and loss of income.

DZs aren’t the only ones affected by these laws. Individuals are, too. Many individual skydivers who work at DZs welcome becoming employees instead of contractors because they gain certain employee rights and benefits. To be sure, a DZ’s costs go up. (Some estimate that employee taxes and benefits cost businesses an extra 20 percent of payroll.) The price you and I pay for a jump ticket would surely go up, as well. A number of skydivers may prefer to work as independent contractors, setting their own schedules and working at different DZs depending on the weather, the season or the DZs’ workloads. However, a state’s employment law dictates whether a worker is an employee or a contractor; it isn’t the choice of those doing the hiring or the work. And state workers’ compensation laws also apply to contractors, requiring contractors to secure workers’ comp insurance for themselves.

The message is clear: DZ operators and workers alike should review state and federal laws and guidance and ensure compliance with those laws by applying the labor departments’ tests to determine proper classification. There are many pros and cons regarding whether a worker is classified as an employee or contractor, but obeying the law is at the top of the list.

In addition to educating DZs and skydivers about employment law, USPA is trying to determine if the association can play a more active role that would benefit DZs, skydivers and the skydiving community. One way would be to educate and inform those who offer and administer workers’ comp plans about the relative safety of skydiving in an effort to bring down workers’ comp rates so DZs and independent contractors would pay less for coverage. Or perhaps USPA can find an underwriter willing to offer a group workers’ comp policy with affordable rates. We’re working on these and other ideas. More to come.

 

Blue skies,

Ed Scott | D-13532 | USPA Executive Director

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