with: Gavin Reherman, AcuDent – Paintless Dent Repair (Kentucky, USA)
Workers’ compensation is important to employees in many industries and provides wage replacement and medical benefits to employees injured at work. It is also important to employers because they are protected from being sued by employees for those injuries. But do paintless dent repair companies, which often use contracted workers instead of employees, need to offer workers’ compensation insurance to serve body shops? The question has been asked at an increasing rate, as PDR methods become a more popular alternative to traditional dent repair.
A few years ago, during the busiest period of my company’s history, I was continually asked by my larger body shop accounts to provide documentation for workers’ compensation. The problem was, I didn’t have any. I never thought it was necessary. I always thought, and was led to believe our garage keepers liability policy was all we needed.
I did some research and found that workers’ comp was only for employees or a large group of contractors for a specific project. I didn’t have employees; I had contracted technicians. Apparently, that was where the problem was. Around the same time, my accountant told me that the large amount of revenue I was making required my technicians to be on payroll, filing taxes twice a month on the commissions they were making.
I didn’t know anything about this world of employees, workers’ comp, and employee taxes. To say it was daunting is an understatement. I had thought that everything I was doing was sufficient on every level. My 1099s were always filed completely and on time.
Because major upheavals never happen just one at a time, not long after, our work vehicles were dropped by our insurance company. We didn’t have proper commercial insurance. So within a span of a few short months, we had to completely change the way we were doing things. Our techs (who had been working exclusively for me for years) needed to be employees in the eyes of the state. Our vehicles, which had always been under my personal insurance, needed to be under the company’s name and covered under a commercial policy. It was a significant learning experience. I’m incredibly grateful that I had several people around me, who were smarter than I am, to guide me through the process.
Here are some of the lessons I learned. Hopefully, I can use my experiences to help guide others through the same process. If you are wondering at this point if any of your dent technicians are employees, know that an employee is anyone who is using your name to do business consistently. It’s that simple. It doesn’t matter if he is going to various shops in your area or crossing state lines. Rules vary from state to state on who is considered an employee. Workers’ comp regulations, however, are consistent. You need to have it for your employees. You need to file taxes and W-2s indicating how much employees are making. Generally speaking, sole proprietors and partnerships aren’t required to purchase workers’ comp until they have employees of their own. But regulations warn that employers may have workers who qualify for employee status. Most states will treat an uninsured contractor or subcontractor as an employee if he or she is injured while doing work for your company.
The body shops you do work for have the same liability issues and they have workers’ comp for their employees. Those body shops are hiring companies, which they expect to follow the same workers’ comp rules that they are. It is the law to have workers’ comp for your employees.
Although not thrilled about the changes at first, my technicians understood that in order to be a legal company in the state of Kentucky, we had to do these things. It was partly my fault for not being more proactive and making sure that what we had though was sufficient was, in fact, sufficient. But there were only two options: make the technicians legal employees or dissolve the company and go out on our own as independent technicians. We all agreed that becoming legal was our best shot at success.
My office staff worked with our accountant to get us all set up as employees. We filed with the federal and local agencies to get the technicians’ taxes direct deposited into an account. The techs filed W-4s. We set up to file a K-1 every month to fulfill our state tax obligations. We then called our local insurance agency and got workers’ compensation insurance. What has come with it is the security and confidence that we are doing the right thing. We get the opportunity sleep in our own beds every night knowing things are legal. Sure, we have all the guys that are on unemployment and have no insurance doing cars for $50 during the winter. However, being properly insured has been very important in maintaining a professional relationship with our large dealership accounts. They will let only us touch their cars because of the steps we have taken.
We did have to cut back on the commission percentage that we pay our technicians to be able to file their taxes for them every two weeks. But they reap the benefits at the end of the year when their taxes have already been paid throughout the year. Previously, they owed a large sum at the end of the year when they reported their endings.
We still hire contracted technicians from time to time, when demand exceeds the amount our technicians can cover. When we bring in techs, we require a signed W-9 form, a copy of their general liability and a copy of their driver’s license. Under our insurance policy, all of these requirements are necessary for contractors to perform work in AcuDent’s name.
Gavin Reherman, AcuDent – Paintless Dent Repair (Louisville, Ky)
1-855-ACU-DENT
Addition by: Brad Hodgson, Dentmasters, Inc (Virginia)
In order to run a legitimate PDR business with 3 or more full time employees in the state of Virginia we are required to have workers’ compensation insurance. We have 11 full time techs and a couple of helpers. Our policy covers our guys on the job, whether they are at one of our retail shops or providing dent work at our dealership, body shop, and service accounts. All of our major accounts are constantly asking for proof of insurance. They do not want to be on the hook if one of our guys gets injured in their shop.
Insurance is a necessary cost that must be accounted for when running any business, PDR included. At Dentmasters, our premiums are mainly determined by the previous year’s total revenue. Keep this in mind when creating a budget, especially when you are hit with a non frequent hail storm. In 2010 a major storm landed right on top of our shop and hit almost all of our dealership and body shop accounts. We got swamped with work and had to bring in about 60 contractors. We had to cover most of those guys under our workers’ comp insurance policy (some techs already had their own policy). It was a banner year. Our revenue spiked up 40% compared to a non hail year. The following year our workers’ compensation insurance policy skyrocketed, due to the revenue our company generated the previous year. We were prepared for the jump, and set aside the appropriate funds to cover it.
Running a successful PDR business is all about building relationships, providing exceptional customer service, generating a great income for your technicians, and proper money management. When managing your income and expenses alway remember to account for all of the correct insurance policies, workers’ compensation included.
Brad Hodgson established Dentmasters, Inc in the Washington, DC metro area in 1991. To learn more about his company visit Dentmasters.com or connect with him on Facebook.
For more information on how worker’s compensation is regulated in your state visit NFIB.com
