North Carolina Industrial
Commission
Compliance and Fraud
Investigation Division
DISCLAIMER
The content in this presentation regarding your rights and obligations
under the North Carolina Workers’ Compensation Act is for general
information only. The information provided does not apply to any
specific case, is not legal advice and should not be relied upon. If you
have any questions about your situation or any specific case, you should
contact an attorney for his or her legal advice. Any questions about
proper insurance coverage should be directed to an insurance agent or
attorney. Please note that the information provided may change as a
result of legislative action, court decisions or rules adopted or amended
under the North Carolina Administrative Procedures Act.
Overview
• Workers’ Compensation Act
• Our Compliance Efforts
• Our LEO Efforts
• N.C.G.S. § 97-19
• Employee Misclassification
• Question/Answer
Workers’ Compensation Act
• Employers must provide coverage to employees
at no cost to the employee if:
– Three or more employees regularly employed in the
same business or establishment, or
– One or more employees employed in activities which
involve the use or presence of radiation,
– If providing agriculture services, 10 or more full-time
non-seasonal agricultural workers regularly employed
by the employer
• See N.C. Gen. Stat. §§ 97-2(1), 97-2(3), 97-93
The Compliance and Fraud
Investigation Division is composed
of two units:
• Compliance Unit
• Fraud Investigation Unit.
Our Compliance Efforts
The compliance effort all starts
with the Compliance Unit. The
Compliance Unit is responsible
for investigating cases involving
employers who are operating as
non-insured employers. An
employer is considered noninsured if the employer does not
carry workers’ compensation
insurance or is not licensed by the
Department of Insurance to selfinsure.
(N.C. General Statute§ 97-93(a))
How Do We Do That
Prior to April 14th 2014 we received leads about non-insured employers on
our hotline, from employees, from the Department of Insurance, or from
our own Claims section if an injury was involved.
THEN CAME GDAC AND “NETS”
(Noncompliant Employer Targeting System)
“NETS” and How it Works
• “NETS” takes information from various sources
(N.C. Rate Bureau, Dept. of Employment
Security, N.C. Secretary of State, Dept. of
Insurance) and instead of us looking at all that
information one piece at a time, we get to look at
it all in one place.
“NETS” Continued
• “NETS” looks for employers
with 3 or more employees that
don’t currently show coverage
in the N.C. Rate Bureau
System.
• It ranks the alerts on a scale
from 1-100 based on number
of employees, days without
coverage, and industry.
• It allows us to systematically
address the non-insured
employers in the state based
on a ranking hierarchy.
Compliance Unit Contacts
Director of the Compliance and Fraud
Investigations
•
Bryan Strickland
•
Bryan.Strickland@ic.nc.gov
•
(919) 807-2525
Counsel to the Industrial Commission from
the Attorney General’s Office
•
Marc Sneed
•
Msneed@ncdoj.gov
•
(919) 807-2634
Compliance Officer/Accountant
•
Shannon Wharry
•
Shannon.Wharry@ic.nc.gov
•
919) 807-2646
Compliance Officer
•
Alicia O’Neal Ellis
•
Alicia.ellis@ic.nc.gov
•
(919) 807-2553
Compliance Officer
•
Sutton Griffin
•
Sutton.griffin@ic.nc.gov
•
(919) 807-2678
Paralegal
•
Barbara Jenkins
•
Barbara.Jenkins@ic.nc.gov
•
(919) 807-2569
Paralegal
•
Coltrane Milholen
•
Coltran.milholen@ic.nc.gov
•
(919) 807-2669
Compliance Examiner
 Mari Hall
 Mari.Hall@ic.nc.gov
 (919)807-2649
Compliance Examiner
 Carrie Wilson-Morris
 Carrie.wilsonmorris@ic.nc.gov
 (919)807-2665
Administrative Assistant
 Cassalyn Sands
 Cassalyn.sands@ic.nc.gov
 (919) 807-2632
Fraud Investigation Unit
•The Criminal Investigation Unit operates as a law enforcement agency
Responsible for conducting criminal investigations into cases of suspected
workers’ compensation fraud and violations related to workers’ compensation
claims involving employees, employers, insurers, health care providers,
attorneys, and vocational rehabilitation providers.
Fraud Investigation Unit
Continued
• Investigate criminal matters related to:
– Employers who fail to maintain workers’
compensation insurance.
– Fraud by employees who try to unlawfully
obtain workers’ compensation benefits.
– And any other claims arising out of violations
of Chapter 97 by employees or employers.
What are examples of Fraud?
NCGS§97-94 –
c) Any employer required to secure the payment of compensation
under this Article who willfully fails to secure such compensation
shall be guilty of a Class H Felony. Any employer required to secure
the payment of compensation under this Article who neglects to
secure such compensation shall be guilty of a Class 1
misdemeanor.
Other examples of Fraud?
NCGS§97-88.2 –
a) Any person who willfully makes a false statement or
representation of a material fact for the purpose of obtaining or
denying any benefit or payment, or assisting another to obtain or
deny any benefit or payment under this Article, shall be guilty of a
Class 1 misdemeanor if the amount at issue is less than one
thousand dollars ($1,000). Violation of this section is a Class H
felony if the amount at issue is one thousand dollars ($1,000) or
more. The court may order restitution.
Fraud Investigation Section
•
•
The Fraud Investigations Section consists of Six fraud investigators and
Investigative Assistant. To report workers’ compensation fraud, dial toll free
or email:
(888) 891-4895 (in North Carolina), Fax: (919) 715-0282,
fraudcomplaints@ic.nc.gov
The telephone numbers and e-mail addresses for the Fraud Investigations
Section are as follows:
•
Chief Fraud Investigator
•
Samuel M. Constance Sam.Constance@ic.nc.gov (919) 807-2567
Fraud Investigators
•
•
•
•
Joe Lynch Joe.Lynch@ic.nc.gov(919) 807-2568
Angela G. Hayes Angela.Hayes@ic.nc.gov(919) 807-2654
Chase Foss Chase.Foss@ic.nc.gov (828) 234-8733
Timothy Townsend Timothy.Townsend@ic.nc.gov (910) 622-2862
Investigative Assistant
•
Catherine Ittermann Catherine.ittermann@ic.nc.gov(919) 807-2682
How to Report
• To report workers’ compensation fraud:
Call Toll Free
(888) 891-4895 (in North Carolina)
(919) 807-2570 (Outside North Carolina)
Or Fax your Complaint to
Fax: (919) 715-0282
Or Email your Complaint to:
fraudcomplaints@ic.nc.gov
N.C.G.S. § 97-19
•
Any principal contractor, intermediate contractor, or subcontractor
who shall sublet any contract for the performance of any work without
obtaining from such subcontractor or obtaining from the Industrial
Commission a certificate, issued by a workers' compensation insurance
carrier, or a certificate of compliance issued by the Department of Insurance
to a self-insured subcontractor, stating that such subcontractor has
complied with G.S. 97-93 for a specified term, shall be liable, irrespective of
whether such subcontractor has regularly in service fewer than three
employees in the same business within this State, to the same extent as
such subcontractor would be if he were subject to the provisions of this
Article for the payment of compensation and other benefits under this Article
on account of the injury or death of any employee of such subcontractor due
to an accident arising out of and in the course of the performance of the
work covered by such subcontract. If the principal contractor, intermediate
contractor or subcontractor shall obtain such certificate at any time before
subletting such contract to the subcontractor, he shall not thereafter be held
liable to any employee of such subcontractor for compensation or other
benefits under this Article and within the term specified by the certificate.
N.C.G.S. § 97-19 Continued
•
•
Notwithstanding the provisions of this section, any principal contractor,
intermediate contractor, or subcontractor who shall sublet any contract
for the performance of work shall not be held liable to any employee of such
subcontractor if either (i) the subcontractor has a workers' compensation
insurance policy in compliance with G.S. 97-93 in effect on the date of injury
regardless of whether the principal contractor, intermediate contractor, or
subcontractor failed to timely obtain a certificate from the subcontractor; or
(ii) the policy expired or was cancelled prior to the date of injury provided
the principal contractor, intermediate contractor, or subcontractor obtained a
certificate at any time before subletting such contract to the subcontractor
and was unaware of the expiration or cancellation.
Any principal contractor, intermediate contractor, or subcontractor paying
compensation or other benefits under this Article, under the foregoing
provisions of this section, may recover the amount so paid from any person,
persons, or corporation who independently of such provision, would have
been liable for the payment thereof.
N.C.G.S. § 97-19 Continued
•
•
Every claim filed with the Industrial Commission under this section shall be
instituted against all parties liable for payment, and said Commission, in its
award, shall fix the order in which said parties shall be exhausted, beginning
with the immediate employer.
The principal or owner may insure any or all of his contractors and their
employees in a blanket policy, and when so insured such contractor's
employees will be entitled to compensation benefits regardless of whether
the relationship of employer and employee exists between the principal and
the contractor. (1929, c. 120, s. 19; 1941, c. 358, s. 1; 1945, c. 766; 1973,
c. 1291, s. 10; 1979, c. 247, s. 2; 1987, c. 729, s. 4; 1989, c. 637; 1991, c.
703, s. 7; 1993 (Reg. Sess., 1994), c. 679, s. 10.6; 1995, c. 517, s. 36; 1995
(Reg. Sess., 1996), c. 555, s. 1; 2013-413, s. 13(c).)
N.C.G.S. § 97-19 Continued
1. Obtain a copy of the sub-contractors workers’
compensation policy prior to subletting the contract.
– If you fail to do so you can be held liable.
2. The principal, intermediate or subcontractor who
sublets a contract will not be liable if;
– The subcontractor has a current workers’ compensation policy
– The subcontractor had a policy that expired or was cancelled
prior to the date of injury provided the principal, intermediate or
subcontractor obtained a certificate prior to subletting the job and
was unaware of the expiration or cancellation.
3. The principal or owner may insure any and all of his
contractors and their employees in a blanket policy.
Employee Misclassification
• One of the biggest challenges for
companies is determining whether workers
are employees or independent contractors
Employer Responsibilities if Worker is an
Employee
1) Employer must withhold income tax and the employee’s
portion of Social Security and Medicare tax.
2) The employer is responsible for paying the IRS the
employers portion of Social Security and Medicare Tax
as well as paying the federal unemployment tax.
Employer Responsibilities if Worker is an
Independent Contractor
• The employer is not responsible for any
payroll taxes for independent contractors.
Employee vs. Independent Contractor
• Employee - An individual who performs
services for you and who is subject to your
control regarding what will be done and
how it will be done. (Referred to as Right
to Direct and Control)
• Independent Contractor – An individual
who performs services for you, but you
control only the result, not the means and
methods of accomplishing the work.
Employee vs. Independent Contractor
Continued
• The IRS has 20 Common Law Factors that
help determine if a worker is an employer
or an independent Contractor
– These include things like Training, set hours
of work, payment of expenses, furnishing
tools, right to terminate, etc.
Employee vs. Independent Contractor
Continued
• The IRS has now grouped these into 3
categories:
1.Behavioral Control
2.Financial Control
3.Relationship of Parties
Consequences of Misclassification
1. Failure to withhold Federal and State Income
tax.
2. Failure to withhold Social Security Tax (FICA)
3. Failure to pay Federal and State
Unemployment taxes
4. Failure to carry Workers’ Compensation
Insurance.
5. Failure to provide Health and Welfare Benefits.
6. Failure to provide Pension Plans
Consequences of Misclassification
7. IRS Penalties – If deliberate, the employer may have to
pay a penalty of 20% of the FICA that should have been
withheld. If the proper 1099 Forms are not filed, the
penalty may be as high as 40%.
8. If the IRS decides the employer has deliberately
misclassified workers, not only can they hold the
employer responsible for the taxes, they can go after
the business owners and/or officers – potentially 100%
penalty.
Consequences of Misclassification
Continued
9. N.C Department of Revenue – Failure to pay
State Income and Employment Tax
10.N.C. Industrial Commission – Failure to carry
Workers’ Compensation Insurance.
11.N.C. Department of Labor – Wage and Hour
violations.
Consequences of Misclassification
Continued
• While most violations may be handled
civilly, they can lead to criminal charges.
In 2010 83% of the convictions involving
IRS violations resulted in an average jail
time of 24 months.
Conclusion
Bryan Strickland
Director of Compliance and Fraud Investigations for the N.C. Industrial
Commission
430 N. Salisbury Street
Raleigh, NC 27603
(919) 807-2525
Bryan.Strickland@ic.nc.gov
North Carolina Industrial Commission Website:
www.ic.nc.gov
Link for the Insurance Coverage Search System
Under the LINKS tab – Livelink Database lookup