My Employer Says I am an Independent Contractor. Is it True?
Not necessarily. What the employer calls the worker does not make it so. There are formal tests that L&I and the Courts use to decide if a worker is an independent contractor or a worker.
I Signed a contract Saying I Am an Independent Contractor. Does that Make it So?
No. You could sign a contract saying you are the man on the moon and it would not be true. An agreement between you and your employer does not control Labor and Industries.
Does a Form 1099 Make Me an Independent Contractor for L&I?
Tax form 1099 sent to you by an employer does not make you an independent contractor. A 1099 is a federal tax form used for federal tax purposes. It does not determine how L&I will apply it’s rules.
What are the Advantages to an Employer for Hiring an Independent Contractor?
- No obligation to pay L&I premiums
- No negotiations with unions
- No obligation to pay benefits like health care, retirement plans, sick leave and overtime
- It can cost less
- Independent contractor’s generally bring expertise and tools to the job
What Government Agencies Define Independent Contractors?
There are many, and each agency has its own tests. The agencies include the Federal Department of Labor, IRS, Employment Securities and Washington State Department of Labor and Industries. This page is written for injured workers in the Washington Labor and Industries system. If you are an employer or if you are interested in another system, contact them or a lawyer who does that work.
Why Does it Matter if You are an Independent Contractor or an Employee?
Your status as an independent contractor or as an employee makes a huge difference in taxes, recordkeeping, employment benefits, L&I claims, third party lawsuits, and in L&I premiums and assessments.
How Do You Know if You are an Independent Contractor or Employee?
The most important factor is one of direction and control. In general an employer controls an employee. The essence of the employment relationship is personal labor. There is however much more to this. There are specific L&I tests, and here they are:
Personal Labor Test – L&I’s Test for Independent Contractor
If one of these two statements is true, then the individual is an independent contractor.
- The individual brings their own employees to perform the work, and you don’t control the individual or their employees.
- The individual brings heavy or costly specialized heavy equipment and their expertise to operate it, and you don’t control the individual (Examples: MRI machine, earth-moving equipment, ultrasound machine).
Six and Seven Part Test RCW 51.08.195
If the worker is not an independent contractor via the personal labor test above then the employer must use the 6-part or 7-part test to determine if the employee is a worker or an independent contractor. When using the 6-part or 7-part test, remember that your worker must pass all 6 parts to be exempt from coverage (7 parts for construction). If your worker doesn’t pass all parts of these tests, they are a worker, not an independent contractor, so the employer must provide workers’ compensation.
- Be free from the employer’s control or direction.
- Must pass 1 of the following 3 options:
- The service is outside the usual course of business.
- The service is performed outside all of the places of business.
- The individual is responsible for the costs of the principal place of business from which the service is performed.
- Must pass 1 of the following 2 options: The individual:
- Is customarily engaged in an independently established trade, occupation, profession, or business, of the same nature as that involved in the contract of service.
- Has a principal place of business that is eligible for a business deduction for IRS purposes.
- The individual is responsible for filing a schedule of expenses with the IRS.
- The individual has established an account with the Department of Revenue and other state agencies as required.
- The individual is maintaining a separate set of books or records that reflect all items of income and expenses.
- For construction only: The individual is properly registered as a contractor or has a valid electrical contractor license.
What Happens if an Employee is Injured on the Job and the Employer has Misclassified Them as an Independent Contractor?
- Good news for the injured worker. You should be covered by L&I. Contact us and we’ll help you get in touch with L&I and get you L&I coverage.
- Bad news for the employer. There will be an audit. If there has been a misclassification there will be an order of assessment and penalties, premiums, interest, wage issues such as overtime and benefits. It does not pay to misclassify a worker.
What if an Employer Specifies the Wrong Risk Classification?
- No problem for the employee
- Bad news for the employer. L&I does not like this and will investigate. Here is a good article on employer audits from L&I L&I Field Audits
- More bad news for employers. Employers who unfairly compete by not paying L&I premiums are considered to be cheaters. L&I and other state and federal agencies aggressively audit and police employers. They are watching the line between employee and Independent Contractor. If they find an employer on the wrong side of the line, it could get expensive
What is a Worker?
A worker is an employee. The Washington State statute RCW 51.08 specifies who is a worker and the exceptions.
Do Employers Have to Pay for L&I Coverage for Their Workers.
Yes they do. Coverage is mandatory. Almost all workers must be covered. RCW 51.08.180 specifies who is a worker.
Are There Exceptions to Mandatory L&I Coverage?
Yes there are exceptions to mandatory L&I coverage. RCW 51.12.020 lists exceptions to include domestic servants, gardeners and handyman in or about the private home of the employer, sole proprietors, or partners, bona fide corporate officers, entertainers, newspaper vendors, and some vehicle operators. There are other exceptions. See RCW 51.12.
Who is an Independent Contractor?
It’s complicated; consider this example. If a homeowner hires a plumbing company:
- the individual plumber sent to do the work is an independent contractor to the homeowner.
- that same individual plumber is an employee of the plumbing company
An independent contractor is hired to perform a specific limited task, and when they are done with that or those tasks they get paid.
An employee is hired on an ongoing basis and is usually paid for their time.
What is the Main Disadvantage of Hiring an Independent Contractor?
An independent contractor can sue you if you are negligent. Your employee cannot.
Will L&I Help Employers Properly Classify Workers?
For sure they will, so long as the employer approaches L&I first.