Are Independent Contractors Putting Your Operation at Risk? Part II

Continued from Part I

Understanding Your Legal Requirements

Historically, the IRS has used a 20-factor analysis to deter- mine worker status. Congress has also enacted what’s called Section 530 Safe Harbor based on consistency of treatment and reporting. Under the ruling, businesses are required to demonstrate that workers designated as independent contractors are consistently treated as such and that workers who perform similar functions are also treated as independent contractors and not employees. This is where aviation misses the flight. Independent contractor pilots and maintenance technicians typically perform similar functions as full-time employees. Operations hoping to find protection under the Safe Harbor ruling should consult with a labor attorney.

Workman’s Comp: The Reality

Workers’ compensation is another gray area overshadowing the independent contractor issue. If the independent pilot injures himself on assignment, guess whom he comes after? Your business. It’s a well-known fact that most independents don’t carry their own workers’ compensation insurance. It’s also a well-known fact that courts have ruled in favor of the injured independent in lawsuits. Once again, you could find yourself paying a backlog of premiums and interest to your workers’ compensation insurance company when the judge decides you should compensate the independent for his on-the-job injury.

Making an Informed Decision

It’s critically important that you understand all the ramifications with regard to staffing with independent contractors. We would be happy to help you explore all your options with a thoughtful risk-benefit analysis, so you can get your head around this complex business decision.

Air-Sur Expertise

At Air-Sur, our knowledgeable and highly experienced team are experts at analyzing your unique situation, and helping you make informed decisions that are best for you and your business. Please contact us today and let’s get started.


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.

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…

Cyber Threats and Liability: A Close and Critical Look.

Cyber insurance is simply a must in today’s world where security breaches are commonplace, even among the most well protected companies. The ugly reality is that cyber-attacks result in the loss of hundreds of thousands and even millions of dollars, not to mention the immeasurable loss of a company’s reputation. The magnitude and reality of the problem is detailed in the startling statistics below.

Statistics/Risk Factors

  • Average internal investigation costs associated with 5,000 compromised files: $831,360.
  • Cyber-attacks are increasing in sophistication and frequency every single year.
  • 50% of attacks were on companies with 2,500 or fewer employees.
  • 31% were on companies with fewer than 250 employees.
  • Average of $188 per compromised customer record.
  • The average company confronts more than 5,000 security threats from malware every month.

Managing Risks

So how can businesses better manage the risks related to a data breach and reduce the significant cost that can result from them?

Multiple and more sophisticated safeguards are being put in place every day. However, cyber insurance is a must. In the vast majority of states, federal or state laws may mandate that your company take (and bear the expense of) certain measures in the event of a security breach. So let’s look at some ways to evaluate policies.

Measuring Your Policy

Who is covered?

Your policy should include the:

  • company
  • directors
  • employees

What is covered?

Your policy should cover:

  • Cyber Liability
  • Privacy Notification and Crisis Management Expenses
  • Reward Expenses
  • E-Threat Expenses
  • E-Vandalism Expenses

What expenses are covered?

The cost of repair can be enormous. Make sure you are adequately insured.

  • Privacy notification expenses.
  • Cost of monitoring and restoration services for affected customers.
  • Crisis management and privacy notification expenses.
  • Cost of legal counsel and information security forensics investigators.

Keeping our clients informed and educated is a cornerstone of our Professional Client Care® program. As always, feel free to call us to discuss this issue.

Employee File Folder

Workers’ Compensation

Tom Coughlin 2015By Thomas K. Coughlin, AAI, Air-Sur, Inc

Premium Pitfalls

In the blur of what’s required to run a business these days, executives often make the mistake of placing some important duties on the same level as an annual physical or a tune up for their cars. They’re important things to do, but once completed they can be forgotten until next year.

Treating some business matters this way can end up being expensive. Take, for example, the annual consultation with an insurance agent about workers’ compensation premiums. More than likely, the agent initiates the meeting, obtains the anticipated payroll for the upcoming year and develops the estimated premium.

That’s all there is until next year, same time, same agent. Right? Wrong! It’s a rare business that doesn’t change its game plan sometime during the following year. Such changes can affect how much money that business may owe at the time of audit. A higher-than expected audit premium can deliver a blow to the company’s well-planned budget.

More and more business owners are now realizing they can’t approach worker’s compensation coverage like their car’s maintenance schedule. They’ve learned to monitor the areas which might result in additional audit premiums: independent contractors, employee classifications and employee payrolls.

Read the complete story: Click to download

Employment Practices: Liability

Employment Practices Liability: Protection Against Personnel-Related Lawsuits

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

Today, good, smart business leaders are effective risk managers. But, an essential part of being an employer, hiring, maintaining and firing employees, has grown over the past decade as an area in which some of the greatest risks, and subsequent losses, have set back or permanently crippled otherwise successful businesses because they did not insure against potential losses. Like all other areas of risk management, employment practices requires a business leader to know all the rules, follow them carefully and have the resources to fight it out in court, if needed, should something go wrong anyway. In many cases, defending such actions requires a new type of insurance.

Insurance Policies That Cover Your Personnel Policies.

Even the best personnel policies can’t prevent a lawsuit, especially the type that is designed to extract revenge or as a part of a fishing expedition. That’s where insurance that covers this type of liability becomes even more important. Many employers erroneously believe their general liability, directors’ and officers’ and/or workers’ compensation policies will protect them in such circumstances. In most cases, they’re wrong and they’re facing a risk they wouldn’t otherwise tolerate. In the past, the above mentioned insurance coverages might have been adequate. But with the rise in employment practices litigation and the large amounts being awarded plaintiffs, many insurers are specifically excluding such legal matters under their policies. Specific employment practices liability insurance polices, in many cases, are the only effective protection against personnel-related lawsuits today.

An Emerging Marketplace.

Such policies are being offered by a number of insurance companies now. Generally, they are activated early in the complaint process to allow proper defense representation and cover legal costs, settlements and judgments, to a specified limit, in cases related to hiring, employment and termination. Without these insurance policies, companies often have found themselves digging deeply into resources to pay for legal services and/or settlements. Many don’t have those resources, and the potential for disaster in such cases is enormous.

The vast majority of businesses are not insured for employment practices liability exposures. The problem has developed so quickly and is so complicated that many simply aren’t aware of the real exposures that exist. We will be working closely with you to help manage and insure these risks cost effectively.

Read more: download the in-depth PDF