CPA Giving Poor Advice

[MrGolf]

Have had a situation or two here recently where CPA's have given poor advice to some clients. Short version of one of the stories is CPA telling the insured they "...don't need workers comp because the employees are 1099." Specifically this is for a long haul trucker. Of course we all know they do need the workers comp and that the 1099 employees payroll has to be included in it.

The problem is that the insured gets mixed signals. They trust me, but they also trust the CPA. What this leaves is the insured thoroughly confused on how to proceed causing a mess for everyone and the insured in a vulnerable position. I don't attempt to give advice about taxes, I wish accountants and such wouldn't attempt to give advice on insurance/risk management.

Anyone else ever run into this problem? Frustrating.

 

[insurance1822]

^why does he need come of they're 1099'ed

 

[MrGolf]

^why does he need come of they're 1099'ed

Mainly for the Employers Liability section of the WC policy. Because when that "1099, Independent Contractor, etc." gets in a bad accident and gets stuck with half a million dollars of medical bills they all of a sudden are no longer going to be "an independent contractor" and they are going to attempt to come after the corporation in a lawsuit. The EL section of the WC policy will be there in defense of the corporation. And although far from the unlimited benefits of the WC portion, it will give them something.

Also, Kentucky statutes and the Kentucky Dept. of Labor have a pretty strict definition of what is an "independent contractor." Long haul truck drivers definitely don't fit the criteria.

As I've told the client, you can pay them by 1099 all day long. Fine by me. But we still have to include their payroll on the WC to protect the corporation. Otherwise you are going to be in a vulnerable spot.

 

[scagnt83]

Mainly for the Employers Liability section of the WC policy. Because when that "1099, Independent Contractor, etc." gets in a bad accident and gets stuck with half a million dollars of medical bills they all of a sudden are no longer going to be "an independent contractor" and they are going to attempt to come after the corporation in a lawsuit. The EL section of the WC policy will be there in defense of the corporation. And although far from the unlimited benefits of the WC portion, it will give them something.

Also, Kentucky statutes and the Kentucky Dept. of Labor have a pretty strict definition of what is an "independent contractor." Long haul truck drivers definitely don't fit the criteria.

As I've told the client, you can pay them by 1099 all day long. Fine by me. But we still have to include their payroll on the WC to protect the corporation. Otherwise you are going to be in a vulnerable spot.

Ask the carrier how they classify the position, or would classify the position on an audit. That should give the employer the clarification they need.

 

[cottonland]

To answer your immediate question, yes i have had this happen before. I asked the insured, how long the cpa has had their insurance license. They needed to leave the insurance aspect to me and the accounting to their cpa. Pissed the cpa off, but who cares.

Relative to paying employees as 1099. If the employees are TRULY independent contractors then they should provide COI showing that they have WC coverage. Otherwise they would be considered an uninsured sub and therefore the payroll is charged to the insured.

 

[insurance1822]

Hey I'm all for getting the new workers comp premium, but it would also be fantastic to see the insured take his CPA's advice over yours (like an ***...) and then get smashed with a massive claim & go out of business because of it.

#zerotoleranceforidiots

 

[DHK]

Get the recommendation in writing from the CPA... or the declination of coverage recommendation and professional liability being assumed by the CPA.

Write up a "Declination of Coverage" letter that explicitly states that per the advice of your CPA, you have chosen to not apply for coverage at this time.

Then put a paragraph about the risk and advice of that risk that you need to ask the CPA to sign.

"I, Joe Jones CPA, made the professional recommendation to (client and business name) to not purchase (name of insurance coverage) that was recommended by James Smith, insurance agent. In the event of a (name situation here), I have advised my client to own the risk, rather than the purchase of insurance coverage that would protect the client's business assets and cash flow.

I also understand that I, as my client's CPA and trusted advisor, may be held liable for such professional advice."

Get the client and the CPA to sign such a letter and keep it in your files.

 

[scagnt83]

Relative to paying employees as 1099. If the employees are TRULY independent contractors then they should provide COI showing that they have WC coverage. Otherwise they would be considered an uninsured sub and therefore the payroll is charged to the insured.

The P&C lady in my old office had this come up once. The above is correct.

It goes back to a court case from the 80s with a realtor. If the sub does not carry WC coverage then the business can be held liable for it. I think the sub has to work exclusively for that business though or a certain amount of hours.

 

[MrGolf]

Here's the latest update on this saga (for those curious):

Met with the client today for over an hour. Went over all the reasons we need the WC policy, so on and so forth. He's on board and the light bulb is coming on that he's in a pretty vulnerable spot. He writes me a check for the down payment (it's about a $100,000 account). I drive back to the office and send in word to get the coverage bound. About 5:15 as I'm sitting on my back patio I get a call from the client and he's in his office with his "consultant." We're on speaker phone and he says the "consultant" wants to ask some questions. I let him fire away. The "consultant" starts wanting to know why we can't exclude the owner-operators (sub-contractors) from the WC. I explain to him that unless they have their own WC policy on themselves (which, they don't) and can provide a certificate showing such then their payroll has to be included and charged for.

Now the client is absolutely confused and I'm going to have to send him documentation showing that what I said is correct according to both the carrier and the state of Kentucky. Not a huge deal but extra work and hassle all created by a third party without an insurance license who is in his ear.

The "consultant" kept bringing up the Occupational-Accident insurance that the owner-operators would carry. I explained to him that's all fine and good for the medical bills of the owner-operator who is injured, but that isn't helping protect the corporation from a lawsuit or offering the Employers Liability section.

What a train wreck.

 

[cottonland]

If this is a CPA not a true insurance consultant, and they do not have their P&C license, they are more than likely in violation of the insurance statute in your state regarding advising and negotiating insurance coverages.