Friday, February 8, 2013

Employers In Denial; Wages & Exemptions

The extent to which business owners will try to skirt workers' compensation obligations never ceases to amaze me.

In California, nurse staffing agency ReadyLink is fighting a half million dollar retroactive premium charge from a State Compensation Fund audit that determined the company was improperly classifying wages as per diem reimbursements.

In Minnesota the Amish are seeking a religious exemption from mandatory workers' compensation obligations.

Both of these arguments have been tried in the past by other employers with predictable results, but for some reason employers always seem to think they have some way out of their duties.

First the California example, which I have written about previously.

ReadyLink Healthcare Inc. sued the Department of Insurance (DOI) and the Workers' Compensation Insurance Rating Bureau (WCIRB) after an administrative law judge ordered that it pay State Compensation Insurance Fund (SCIF) an additional $555,327.53 in premium.

ReadyLink was insured by SCIF from 2000 until 2007. State Fund conducted a final audit of ReadyLink in 2007 for its September 2005 through September 2006 policy period. A senior auditor noted that ReadyLink was paying its nurses $6.75 an hour, plus a much higher "per diem" amount.

The auditor had experience with other nurse staffing agencies insured by State Fund and knew of none where traveling nurses received more than half their reimbursement as per diem payments.

ReadyLink's competitors in the same geographic region typically pay their nurses $20 to $50 an hour.

The company lost an appeal to the Insurance Commissioner, Steven Poizner. Poizner issued a precedential ruling and decided that the employer's per diem payments were actually wages for the purposes of premium assessments because there was such a great disparity between the wages actually paid and how it's competitors accounted for per diem.

Readylink has maintained that Poizner's decision conflicts with IRS "safe harbor" regulations, which ease per diem recordkeeping requirements and do not classify per diem payments as wages.

"In accordance with IRS regulations, Readylink's per diem payments were excluded from wages for federal tax purposes," attorney Seth A. Rafkin wrote to the 9th Circuit on behalf of Readylink. "Similarly, California’s own guide for determining workers’ compensation premiums, the Uniform Statistical Reporting Plan, also excludes per diem payments from 'wages' for premium purposes."

ReadyLink thus far has lost all the way up the judicial appeal chain and now it is asking the California Supreme Court and the U.S. 9th Circuit Court of Appeals to rule that the California Insurance Commissioner contradicted federal tax regulations in its ruling, apparently unable to fathom that tax law and workers' compensation law are two different things or just so completely stubborn that the company's executives can not accept the reality that they owe more than a half million dollars in premium (likely much more now after accruing interest and late pay penalties from over 6 years of wrangling).

The 2nd District Court of Appeal had put the issue quite succinctly in its opinion last November:

"The IRS collects tax revenue from employers and employees to fund a variety of federal programs, whereas the purpose of the USRP is to accurately recognize the amount of an employee’s real wages to ensure that the SCIF has sufficient reserves to pay a worker his or her wages if injured on the job."

As I said at the time, "Workers' compensation has NOTHING TO DO with tax law. This has been restated so many times since the beginning of work comp that it is unbelievable that any employer would attempt to raise this argument. Usually the attempt to relating tax law to work comp is in relation to employee classification - independent contractor vs. employee. Been there, done that so many times it still puzzles me that any attorney representing an employer would even attempt that argument; likely a professional that is not versed in the special character of work comp law."

Still applicable. ReadyLink is pushing an untenable argument.

By the way, visit ReadyLink's website and you'll see that the company lures its nurses with a promise of "highest take home" and "per diem to offset expenses". 

The company also creatively boasts that it provides insurance coverage to its nurses, including "Workers' Comp coverage" which it says is "free." The company tag line is "$ it's not what you make, it's what you keep $."

I don't think ReadyLink is going to keep about a half million dollars...

In the meantime, Members of the Old Order Amish have asked the Minnesota Department of Labor and Industry to support legislation to change current law to allow members of an established religious sect to be exempted from carrying workers' compensation coverage − if the sect conscientiously opposes receiving governmental payments or assistance.

Bloomington, Minn., attorney Philip Villaume who represents the Old Order Amish told WorkCompCentral the current system in Minnesota requires members of the Amish community to participate in a system of insurance that violates their religious beliefs. And forcing them to pay into a system from which they will never draw benefits creates an unfair economic burden.

Villaume said the Amish pay into their own system that covers the costs related to workers injured on the job. All Amish employers and workers are willing to participate in that system as an alternative to workers' compensation, according to Villaume.

Maybe the Amish should move to Texas.

There are several states that have created exemptions for both Amish and Mennonite religious groups, generally on the grounds that these groups require that "employers" pay into their own systems to cover work injuries, and there are some reporting requirements to ensure that no shenanigans are occurring that would give these groups unfair advantages when competing against similar non-exempt businesses.

Other states have rejected the conscientious objector argument.

Just last Dec. 31, the Montana Supreme Court ruled in a 4-3 decision that a Hutterite community must comply with the state’s workers’ compensation law.
The Hutterites are Anabaptist Protestants who center their lives on their religion and share a common ancestry with the Amish and the Mennonites.

The Hutterites are primarily farmers, but in recent years have also begun competing with private companies in the areas of construction and manufacturing.

The Montana court rejected arguments that the law violated religious protections.

When California was going through its workers' compensation premium hemorrhaging in the early 2000s there were broker groups placing employers under Indian reservation systems claiming exemption from state workers' compensation laws.

That didn't work. The employers were cited and fined. The brokers fought fraud charges and lost.

You know that I think that alternative work injury protection systems are a good idea if properly implemented and in conformance with laws to ensure minimal levels of protection so long as the interests of injured workers are fully accounted for. I think that properly constructed "non-subscription" systems can be very robust and more efficient than traditional workers' compensation but that there need to be minimal standards ensuring benefits to workers are no less than traditional work comp.

A pure exemption based on a religion, however, doesn't meet that test.

What happens when a member no longer subscribes to the religion? What happens when a religious sect is no longer financially capable of taking care of claims? What about "premiums" (or donations, tithing, or whatever the religion wishes to call it) are unrealistically low thus actually giving the sect a commercial advantage?

There are some things where everyone has to play by the same rules and workers' compensation is one of them.

Either this society follows work comp or it doesn't. So long as there is a level playing field and all employers and all employees are subject to the same basic requirements, whether it is called workers' compensation, work injury protection or universal care doesn't matter.

We all want a competitive advantage. But over 100 years ago society decided to compromise on the issue of expense versus protection and those same basic tenets are still applicable today.

Employers - report wages accurately. Save money by making sure your employees don't get hurt on the job and if they do take care of them quickly and responsibly. If you're going to compete for business then focus on operational efficiencies rather than risk management through accounting.

Human nature what it is, though, there will continue to be employers in denial about their social, and legal, obligations; keeps the headlines fresh...

1 comment: