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Avoid the surprise of additional billing from your worker's compensation carrier for persons you thought were independent contractors. Also avoid the possible effects that large claims can have against your experience rating, as could be made by persons you thought were non-employees.

To avoid those problems it is important for a company to effectively distinguish between employees and independent contractors. Management must think in terms of whether the independent contractor could be seen as an employee under worker's compensation law.

Just because a person is paid under tax form 1099 does not necessarily make that person an independent contractor. There are two tests that should help to decide if a person is an independent contractor or employee:

Direction and Control

If you are in control of the work and not just the type of job to be completed, you may be establishing an employer/employee relationship. Your right to control is the key factor. Here are some ways you establish control and make yourself the employer;

      1. You supply tools, equipment, and/or materials.
      2. You set the time and place of work.
      3. Specific responsibility is delegated by you.
      4. You can fire the individual.
      5. You pay by time; hourly, weekly, etc.
      6. You give supervision of work.
      7. The service is expected on a regular basis.

Type of Work

  1. Do current employees do similar work?
  2. Who is responsible for loss if work is not performed?
  3. Is the job an integral part of your business?
  4. Is the individual operating as a business of his own?
  5. Is your business a vital source of the individual's income?

An independent contractor must meet all of the following (9) criteria:

  1. Maintain separate business with work facilities, transportation and equipment.
  2. Agree to perform a specific service for a specific amount of money.
  3. Incur the principal expenses related to the service.
  4. Is responsible for the satisfactory completion and could be held liable for failure to perform as agreed.
  5. Has recurring business liabilities or obligations.
  6. Success or failure depends on the relationship of business income to expenses.
  7. May realize a profit or suffer a loss in connection to the work performed.
  8. Can only be paid on a per-job, commission, or comprehensive bid basis.
  9. Has or has applied for a federal employer ID (VEIN), unless the individual is a sole proprietor who is not required to obtain a FEIN.

    The following is conclusive presumption of an Independent Contractor:

    The Independent Contractor gives an affidavit stating they meet all 9 preceding criteria; and a valid certificate of worker's compensation is given, or a valid certificate of exemption issued by the Division of Worker's Compensation.

    Employer Fines

    Employers will be fined up to $5,000.00 for each employee that the employer claims is an independent contractor, but who the Division finds does not meet all of the above 9 criteria.



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