Are Independent Contractors Putting Your Operation at Risk?

By Thomas K. Coughlin, AAI, Air-Sur, Inc

We all remember when a lethal combination of rising fuel costs and product liability lawsuits sent the aviation industry into a tailspin in the 1980s. General Aviation found its wings again when Congress imposed limits on the suits in 1994. Of course, we had a major setback after the 9-11 tragedy, but we are now gaining altitude again.

The past 20 years of ups and downs have left us a little wiser, but are we prepared to face the new challenges of this turbulent industry? A quick scan of the nation’s leading newspapers offers at least anecdotal evidence that aviation-related lawsuits are on the rise, including pilots suing operators. Let’s face it. Legal liabilities are a reality that operators must take measured steps to avoid.

While product liability suits have rightfully been the focus of significant attention over the years, the issue of independent contractors is like a ticking time bomb waiting to explode on unsuspecting aircraft operators. It’s not a new dilemma. The risk of lawsuits demands operators recognize and mitigate every potential liability – old or new.

The Advantages of Independent Hires

Independent contractors have become a business staple for aircraft operators that need additional affiliate pilots without making a long-term employment commitment, dealing with the administrative hassles involved in the hiring process, or incurring additional overhead costs. But the industry is learning that what has been a convenience could be a blow to the coffers of a business in the aftermath of exposed liabilities.

The Potential Disadvantages

Aircraft operators with independent contractors are exposed to three key liabilities: tax, workers’ compensation, and perhaps most potentially devastating, lawsuits arising from bodily injuries or wrongful death of the independent contractor pilot. Identifying and understanding the risks will help you steer clear of the financial pitfalls.

Nobody likes wading through IRS rules and regulations, and working with independent contractors can open a proverbial can of tax worms. Despite well-crafted contracts, the IRS usually rules independents as full-fledged employees and penalizes operators for not paying employment-related taxes. That’s because the IRS has determined it loses as much as $1.5 billion in uncollected employment tax revenues each year. One wrong step and you could be fined for a backlog of withholding and social security taxes – plus a 100 percent penalty.

Thomas K. Coughlin, AAI, is president and CEO of AirSur, Inc. a business risk management and insurance services corporation headquartered in Ormond Beach, FL. He has specialized in developing, implementing, and managing comprehensive risk management programs for aviation and aerospace companies since 1976.

To be continued…