May 3, 201812:43 PMLaw at Work
with Jessica M. Kramer and Ashlie B. Johnson
Independent contractor status: If it walks like a duck …
(page 1 of 2)
Many businesses use independent contractors. You might use them. If both the business and the individual agree, and even put their agreement in writing, then the individual is an independent contractor, there’s nothing to worry about, right? Wrong.
The status of a person as either an independent contractor (“IC”) or an employee, when performing work for/with a business, is referred to as “classification.” Throughout this article, the terms “classification” and “misclassification” will be used to reference the IC/employee status. You may also have heard (or used) the term “1099” to refer to the person or the person’s status, though 1099 is the number of the IRS form that must be issued to an individual or entity who you paid to perform services. (Note: The writer is not a tax expert and this article does not purport to speak to when a 1099 must be issued.) For example, “I just 1099’d him.” That means you classified him as an IC. Was your classification proper?
Whether an individual is or can be properly classified as an IC, rather than an employee, is governed by the relationship and whether certain factors are present. The existence of a contract that states, “we are independent contractors” can be one helpful piece of evidence to support the classification. However, regardless of what the contract says, conduct governs: If it walks like a duck, and talks like a duck, it’s a duck. Even if there is a contract saying it is a goose, it is still a duck.
There is not one rule, or set of rules, that governs IC classification. There are several, depending on the government agency who is doing (or reviewing) the classification. Most businesses need to be concerned with the IC classification rules of three agencies: the Internal Revenue Service; the Department of Workforce Development (“DWD”) – Worker’s Compensation Division; and the DWD – Unemployment Insurance Division (“UI”). So, even when someone says “the DWD said …” the question becomes which division of the DWD? In this article, we’ll look at what the UI division of the DWD has to say about IC classification.
The test for IC classification under UI laws has two parts. The first part is often referred to as the “control or direction” factor. The second is the “six of nine conditions” factor. Let’s break down each.
Control and direction
The “control or direction” factor takes a holistic view, where the following questions come into play but the answers to each is not dispositive, nor are these questions exclusive. In other words, the answers to these questions will play a large role in the classification, but so can other factors that may be indicators of control or direction of the worker (individual) by the employing unit (business).
- Is the individual required to comply with instructions concerning how to perform the services?
- Does the individual receive training from the employing unit with respect to the services performed?
- Is the individual required to personally perform the services?
- Are the services required to be performed at specific times or in a particular order established by the employing unit?
- Is the individual required to make oral or written reports to the employing unit on a regular basis?