Be careful of the automobile insurance policy options you choose. If you chose “limited tort,” you may be surprised at how little you can collect in the event of a serious accident.

In a recent Pennsylvania case, a couple was able to collect only $450 in damages after the husband was injured in an accident. The couple had insured their commercial van as a private vehicle with limited tort coverage. In their suit against the negligent driver of the other vehicle, they tried to claim that they were entitled to full tort coverage because the husband was driving the van on business at the time of the accident. Their argument was based on the fact that the Pennsylvania law providing for a limited tort election only applies to private passenger vehicles. In Bennett v. Mucci, 2006 Pa. Super 133, the court upheld the lower court’s ruling that, even though the van was being used on business at the time of the accident, the couple was bound by their election to insure the van as a private vehicle with limited tort coverage.

Full Tort vs. Limited Tort
Don’t discover that your insurance will fail you just when you need it. Check which option you chose for your automobile insurance. If you chose the “limited tort” option, and you are involved in an accident due to another driver’s negligence, you are only entitled to reimbursement for any medical bills or other economic losses not covered by your own automobile insurance or other insurance. You will not be able to recover anything for your pain and suffering or for future physical limitations caused by your injuries unless those injuries result in your death, serious impairment of a body function, or permanent serious disfigurement. For instance, you might not be able to collect any compensation for the pain and difficulty caused by a chronic back problem. (Limited tort customers may collect for pain and suffering if the other driver was drunk, was driving an out-of-state vehicle, acted intentionally, or was uninsured.)

If you chose the “full tort” option, you are entitled to sue a negligent driver, not only for any medical bills or other economic losses not covered by your own insurance, but also for compensation for your pain and suffering and for any permanent or continuing limitations on your activities and income that may result from your injuries.

We get frequent calls from prospective clients who have been injured in automobile accidents and who are disappointed to learn that we can do little to get them compensation because they chose limited tort. In the short run, choosing limited tort may save you about 15% on your insurance premiums, but, if you’re in an accident, it will cost you 100% of your right to compensation for the pain and long-term effects of your injuries.

Having a person doing work for you as an independent contractor can mean savings in both money and administrative hassle. There is no worry about withholding and paying federal, state and local income and wage or other taxes on the contractor’s income. There is no need to pay employer taxes, workmen’s compensation insurance, or benefits. All of this is the responsibility of the independent contractor, as is compliance with state and federal labor laws. But sometimes the line between who qualifies as an independent contractor and who must be treated as an employee isn’t entirely clear. So what is the difference between an independent contractor and a regular employee?

According to the IRS, “A general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.”

In practice, courts have taken into account a number of factors in determining whether a person who does work for another is an independent contractor. The factors break down into three general categories: control of behavior, control over finances, and the parties’ perception of their relationship.

Control of Behavior
Independent contractors generally control where, when and how they do their work. They are already trained in the services they are supposed to carry out. The business hiring the contractor can impose broad controls such as a time limit for the work, but cannot dictate details of how the work must be performed. In determining whether a person qualifies as an independent contractor, courts will look at who makes the decisions on such things as: what tools or equipment to use; what workers to hire or to assist with the work; where to purchase supplies and services; what work must be performed by a specified individual; what order or sequence to follow; and whether the person received training from the business in their duties.

Financial Control
An independent contractor engages in a separate business in which that contractor makes an investment and bears a risk. Most often, they work for more than one business, either at one time or one after another. An employee receives a regular paycheck and is reimbursed for most job-related expenses. The employee relies on the success of the business only to the extent of losing bonuses or, at the extreme, losing the job if the business fails. The independent contractor prospers or not depending upon the quality and efficiency of their own services.

To determine whether there is financial independence, courts will look at such things as: the extent to which the worker has unreimbursed expenses; the extent of the worker’s investment; the extent to which the worker makes services available to other businesses in the relevant market; how the business pays the worker; and the extent to which the worker can realize a profit or loss.

Parties’ Perceptions of Relationship
Courts will also look at what the parties’ own actions say about how they perceive their relationship? The kinds of things they will look at include: whether the worker receives benefits; how permanent the relationship is; and how important the worker’s services are to the principal activity of the business.

An important indication here is any contract between the parties. The absence of a contract usually indicates an employer-employee relationship. The parties’ intent as shown in a contract may be decisive in proving an independent contractor relationship, if other factors aren’t conclusive.

If you now hire or expect to hire independent contractors, consult us about drawing up a contract spelling out the relationship clearly, and make sure that your actions conform to the contract. Otherwise, you may find yourself with financial and legal burdens that you didn’t anticipate.

For a handy chart on the differences between an independent contractor and an employee taken from IRS guidelines, go to http://www.ftmn.com/Employee.html.

The Limits of “Limited Tort”

Independent Contractor or Employee?

Plan Now for Roth IRA
If you’ve wanted to have a Roth IRA, but have been limited by the income restrictions on contributions, you may want to plan now to take advantage of an upcoming change in the tax laws. Contributions to Roth IRAs, which are funded in after-tax income and allow you to withdraw principal and interest tax-free after retirement, will still continue to be limited for upper-income taxpayers; but a new law, which goes into effect in 2010, will remove income limits on IRA conversions, allowing upper-income taxpayers to convert traditional IRAs into Roth IRAs. You may want to consider contributing to a traditional IRA now to build up an account that can be converted a Roth IRA when the new law goes into effect. Consult a tax professional to see if this makes sense for you.

Consider Self-leasing Option for Your Business
One strategy that often has important tax benefits for businesses is for the owner of the business to lease equipment and other personal property to the business, rather than having the business acquire it directly. The business writes off the lease payments as a tax deduction and, while the lease payments are income to the owner, they can often be sheltered by depreciation and other deductions. According to a recent Tax Court decision, if the property is eventually disposed of at a loss, the owner can even claim a tax loss because the leasing is treated as a business activity.

UC Rates to Fall
Starting January 1, 2007, Pennsylvania employers and employees will be paying lower unemployment compensation rates. With the improved financial situation of the UC trust fund, tax rates are scheduled to decrease next year. The average tax rate for businesses is projected to fall from 5% to 4.7%, while the tax rate on employee wages goes down from 0.09% to 0.06%. Other charges on employers will also decrease. The total estimated tax reduction is $141 million for employers and $49 million for employees, with no reduction in benefits.