When you are running a cooperative with members who do not have work authorization, there are specific governance and management strategies that will help your cooperative avoid employee classification.
Governance and management strategies that will help avoid employee classification.
How authority is delegated in a business and how workers relate to each other are the most important considerations in deciding if someone is an employee or not. To make sure LLC worker-owners are not classified as employees they need to have ownership and control of the business.
Ways to ensure LLC worker-owners are not classified as employees:
- Make every member an owner.
- No hierarchy between workers.
- Members influence hiring/firing, strategy, & other major decisions.
- Avoid direct supervision.
- Members share in profits and losses.
- Avoid growing very large.
- Member-managed LLC.
- Choose Partnership taxation because the tax status allows you to be seen as “partners” rather than “employees” like in Patronage Taxation.
Things to avoid when worker-owners do not have work authorization:
- Avoid having the word “Manager” in some member’s title and not others.
- Do not give any management authority to non-members (i.e not have ownership stake in the company).
- Avoid growing too large as an individual business. In the I-9 context, Office of the Chief Administrative Hearing Officer (OCAHO) has also paid attention to the size of the entity. As an LLC grows, each individual member has less direct influence on business decisions. The OCAHO may find that a member who does not have work authorization with little ability to control the business is not actually an owner exempt from the I-9 requirement.
- Develop a candidacy process that does not require hiring candidates as employees and/or adopt a candidacy program that does not create an employee-employer relationship.
- A few ways coops can lessen the risk regarding candidacy periods:
- Make candidacy period members legal members of the LLC from the beginning of the probationary period.
- Can be 1⁄2 vote on all matters and/or limit their decision making power to major decisions.
- A few ways coops can lessen the risk regarding candidacy periods:
Internal coop structures ranked “least risky” to “most risky” for member owners without work authorization
Because there are many ways to internally structure a cooperative, here is a list that breaks down the least to most risky internal structure specific to an immigrant coop.
Worker’s compensation can provide benefits that typical health insurances do not
In California, an LLC is not required to take out a worker’s compensation insurance policy as long as:
- Every person listed on the LLC’s statement of information is a managing member.
- There are no employees or non-managing members working for the LLC.
Reasons to take out worker’s comp insurance anyway:
- Decreases likelihood that subcontractor will file suit if injured while working.
- Workers comp insurance provides benefits that typical health insurance policies do not like debt insurance.
- If a city/government agency is looking to contract with a business, they might require any business they contract with offer workers compensation (even with no employee)
Workers comp insurance provides benefits that typical health insurance policies do not. Workers comp provides:
- Medical Care
- First Aid Treatment
- Temporary Disability
- Permanent Disability
- Supplemental Job
- Displacement Benefit
- Death Benefits
In CA, if you decide to take out a policy:
- Premium amount based on type of business and annual payroll $ amount (assumes min. earnings of $54,600/year for each managing member).
- Each managing member must submit a signed waiver of coverage to the insurer in order to opt out.
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