Decision #21/04 - Type: Workers Compensation

Preamble

An Appeal Panel hearing was held on October 14, 2003, at the employer's request. The Panel discussed this appeal on several occasions, the last one being January 13, 2004.

Issue

Whether or not the employer's son, who trades as his own company, is a worker of the employer for the 2000 calendar year;

Whether or not the employer should be charged the inadequate return penalty of $690.23; and

Whether or not the employer should be charged the over-under interest of $306.54.

Decision

That the employer's son, who trades as his own company, is a worker of the employer for the 2000 calendar year;

That the employer should be charged the inadequate return penalty of $690.23; and

That the employer should be charged the over-under interest of $306.54.

Decision: Unanimous

Background

On October 25, 2002, an auditor with the Employer Services branch of the Workers Compensation Board (WCB) attended the employer's residence to "audit the firm's 2000 and 2001 earning records, verify claims paid for those years, investigate the firm's use of sub-contractors, and carry out an industry investigation in conjunction with our audit program." The particulars of the audit details are outlined in a memo to file dated December 13, 2002.

In a letter to the employer dated December 13, 2002, the WCB outlined its position that the company under-reported workers' earnings for the calendar years 2000 and 2001. This discrepancy occurred because the employer did not report earnings for his son who was considered by the WCB to be a sub-contract worker. The 2000 revision included an assessment charge of $763.34 for the labour portion of the work which had been performed by the employer's son.

On February 18, 2003, Employer Services received an appeal from the employer dated February 13, 2003. The employer stated, in part, that he was under the impression that his son had his own compensation coverage.

On March 5, 2003, the Assessment Committee confirmed that the son was a worker of the employer and that the employer was required to report the son's earnings to the WCB for the 2000 calendar year. According to the Assessment Committee, the employer's son was not registered as a "labour contractor" or an "employer" and as such, he was deemed to be a worker of the employer for the period in question. This decision was reached in accordance with WCB policy 35.10.50, Independent Contractors.

In another submission dated April 23, 2003, the employer disagreed with the penalty and interest charges that had been assessed by the WCB on his account. In a decision dated July 11, 2003, the Assessment Committee noted that the "extreme penalty and interest charges" referred to by the employer was a result of an audit to workers' earnings for 2000 and 2001. The audit confirmed that the employer under-reported workers' earnings for both years, thus, inadequate return penalties and over-under interest charges were applied to the account. The discrepancy for both calendar years was due to the fact that the employer did not report the earnings of workers hired on a contract basis.

Under subsection 86(1)(b) of The Workers Compensation Act (the Act), the Assessment Committee noted that employers are subject to penalty where their estimate of workers' earnings does not reasonably reflect the probable amount of their payroll at the time of an audit. With the case at hand, the Committee noted that the employer reported workers' earnings of $40,925 in 2000 and $23,938 in 2001. The audit findings reported an increase of $81,321 in 2000 and $16, 158 in 2001. There were considerable differences in the workers' earnings for both years. Therefore, it was the Committee's opinion that the employer should be charged inadequate return penalties as his workers' earnings did not reasonably reflect the amount of workers' earnings reported on audit.

The Assessment Committee also considered WCB Policy 22.70.20, Waiver of Collection of Interest Charges, which outlined certain criteria with respect to the reversal of over-under interest charges. It felt that the employer did not meet the criteria outlined in this policy as he did not provide revisions to his workers' earnings. Plus, the employer had a history of under estimating workers' earnings (over-under interest charges were applied to his account in 1998 and 2000.) In summary, the Assessment Committee confirmed that the employer would be charged inadequate return penalties of $690.23 and over-under interest of $306.54. In July 2003, the employer disagreed with the Assessment Committee's decisions and an oral hearing was convened.

Following the hearing on October 14, 2003, the Panel met to discuss the case and decided that prior to rendering a decision with respect to the issues under appeal, that a staff member from Employer Services be invited to speak with the Panel members to address issues concerning assessment of penalties and interest charges that were charged to the firm. This meeting took place later on December 3, 2003 and a copy of the transcript was forwarded to the employer for comment. On January 13, 2004, the Panel met to render its final decision with respect to the issue under appeal.

Reasons

In accordance with the provisions of the Act, there is an obligation on the part of some individual and/or some entity to provide mandatory coverage for the employer's son, who was in this case registered with the WCB as an independent contractor, but with no personal coverage. Section 60(2.1) of the Act states as follows:
"Notwithstanding the other provisions of this Act, where a person who is not a worker under this Part performs work for the benefit of another person, the board may deem the first person to be a worker, and the second person to be the employer of the first person, within the meaning of this Act; and the board may determine an amount that shall be deemed to be the earnings of the first person, for the purpose of this Part."
In addition to the foregoing section, WCB policy 35.10.50 deals directly with the expressions 'deemed workers' and 'deemed employers'. "If a person performing work or services in a compulsory industry is not an employer, an independent contractor with personal coverage or a labour contractor with personal coverage, then the person, and any workers hired by the person, are for the purposes of the Act, deemed to be workers in the employ of the principal for whom the work was performed, and the principal is deemed to be the employer of those persons."

After a careful review of the file materials, it became evident that the employer's son did not maintain personal coverage through his own company during the period in question (2000 calendar year). Therefore, that being the case we find that the employer's son was properly deemed to be a covered worker under his father's company. Accordingly, we further find that the employer should be charged the inadequate return penalty of $690.23.

In keeping with WCB policy 22.70.20, over-under interest charges may be reversed if all of the following criteria are met:
  1. The firm has valid business reasons for not being able to accurately estimate (sic) payroll early in the year, but the firm submits a revised estimate of payroll later in the year which is relatively close to its actual payroll, and,
  2. The revision to payroll was made within a reasonable length of time, and,
  3. For the last three calendar years, the firm, in the opinion of the board, does not have a history of significantly under estimating its assessable payroll. (I.e. neglecting to provide a revised estimate in a responsible and timely manner).
The evidence confirms that the employer did not meet the preceding criteria and as such should be charged the over-under interest of $306.54.

As an aside, the evidence further disclosed that the son's painting business declared an employee earnings payroll to the WCB for the 2000 fiscal year. The son's wife indicated at the hearing that there were in fact no employees other than her husband and that the employee payroll really related to her husband's earnings. Based on this information, it would appear that the son's earnings were assessed twice in the year 2000. If in fact this is the case, then it is open to the son to initiate a review with the Assessment Division of the WCB and have the matter resolved.

Panel Members

R. W. MacNeil, Presiding Officer
A. Finkel, Commissioner
C. Monk, Commissioner

Recording Secretary, B. Miller

R.W. MacNeil - Presiding Officer
(on behalf of the panel)

Signed at Winnipeg this 19th day of January, 2004

Back