Do I need to provide workmen's comp?

[urjo]

What is the name of your state (only U.S. law)? NJ
Hello everyone,
I am new here and young. I started a Limousine business as a sole proprietor when I was 22 with only one car in 2004. Hard work, honesty and only hard work allowed me to expand to 6 cars and 4-5 drivers.

The nature of this business is so uncertain. One week I would have enough work and I am crazy busy and other week I am slow and cleaning my own cars to save money at car wash.

Now, I got a general letter from NJ Dept of Labor asking me to provide the workmen's comp insurance details. I am sole proprietor and all my drivers are on 1099 as a subcontractor. They drive my cars, I pay gas and tolls. Drivers are responsible for oil change and GPS. Do I need to provide them workmen's comp? If yes, please explain how and why?
At this point, there has not been any inquiry or audit set up on me by the state but if they do, a few people told me I would be just f***ed. What should I do? I am changing the business from sole proprietor to a C Corp in 2010, but here I am.

Please help me and provide me some details so I can sleep bet
ter because this letter has taken away my sleep. This business has about 16-18% profit ratio and I just found that workmen's comp for drivers is 13.5%. That means every $100.00 I give to the driver, I have to pay $13.50 for insurance on it. That leaves me as a slave to work for myself.

Again, I don't know how to deal with this so. How can I get away with workmen's comp? My drivers are worried too, they don't want workmen's comp and want to continue the same way as well.
Thank you in advance for any possible help
~urjo

[sirbulirk]

I usually see threads that people post in signatures and stuff, and I was wondering, how do they do that?
Do they just go in the off topic section and post what they want and lock it?

[coppermanandson]

The IRS looks at a number of factors when determining whether a worker is an employee or an independent contractor. The agency is more likely to classify as an independent contractor a worker who:

* can earn a profit or suffer a loss from the activity
* furnishes the tools and materials needed to do the work
* is paid by the job
* works for more than one firm at a time
* invests in equipment and facilities
* pays his or her own business and traveling expenses
* hires and pays assistants, and
* sets his or her own working hours.

On the other hand, the IRS is more likely to classify as an employee a worker who:

* can be fired at any time by the hiring firm
* is paid by the hour
* receives instructions from the hiring firm
* receives training from the hiring firm
* works full time for the hiring firm
* receives employee benefits
* has the right to quit without incurring liability, and
* provides services that are an integral part of the hiring firm's day-to-day operations.

If you think the IRS would consider the worker an IC, you don't have to withhold federal payroll taxes for the worker, including Social Security taxes, federal disability taxes and federal income taxes. If the IRS would not consider the worker an IC, then you should withhold these taxes.

[commentator]

It sounds to me as though you have built yourself up into a little business while fudging tremendously on the rules for businesses. The IC rules change your liabilities, true, but eventually, someone will look at you and your little independent contractors, somebody from the state, that is, and determine that you are not running independent contractors, you are running a business with employees you supervise, and you are going to have to take your business to the next level, in other words, become a licensed, tax paying, legitimate business that does provide worker's comp.

What would happen in the case that one of your four or five contractors, driving your limosine, has a dreadful car wreck and is hurt badly? You tell them to go away, right? That they were a contractor, that you're not responsible for their injuries. The State of New Jersey has to be proactive about this sort of thing.

It always amazes me the way people will start a small business, being totally oblivious to the fact that businesses are monitored and taxed and regulated by the state, and that if you become one of them, you will have to follow the rules they already have set up for businesses. You're not exempt just cause you're a start-up, you're a nice person or you're working very very hard. If your business is not making enough money to pay its legitimate costs of doing business, then it needs to close.