The importance of a worker’s classification cannot be overstated. An employee and independent contractor are treated very differently under state and federal law. A worker’s classification is the triggering mechanism that guides how an employer must handle the worker. Key areas of the law affected by a worker’s classification are:
1) Unemployment Insurance
2) Worker’s Compensation
3) Civil Rights
4) Labor Standards
5) Taxes
Some of the areas are limited to state law and others have both state and federal implications. This blog post focuses on items one through four. For state and federal tax purposes, you should seek help from a tax attorney and/or certified public accountant.
Many aspects of the law govern employer conduct in Wisconsin. The law sets standards for employers, and severe consequences will follow when an employer falls below those standards. This is why determining worker classification is critical. If the worker is not an employee, the employer generally has less to worry about. However, arriving at a firm conclusion that a worker is an independent contractor is no easy task; but it is not impossible.
The general presumption in the law is that a worker is an employee until proven otherwise. It is the employer’s job to overcome the presumption of employee status. Essentially, an employer needs to focus attention on the governing contract and upon his or her behavior. Courts will first look to the wording of the contract, and the contract must clearly reflect the parties’ intent that the worker be an independent contractor. There are no “magic words” that need to be included. Rather, the contract should be drafted in a way that grants more autonomy and risk to the worker.
Next, courts will examine the nature of the relationship between employer and worker to determine whether the worker is an independent contractor. Oftentimes, a contractual relationship will be solidified on paper, but in practice, the parties will conduct themselves in an entirely different manner. And in doing so, the employer runs the risk of a court finding the worker was treated more like an employee as opposed to an independent contractor. Therefore, if an employer wishes to do business with an independent contract, the employer should treat the worker as such.
There are many characteristics that differentiate an employee from an independent contractor, and employers are advised to seek legal counsel to learn more on this matter. At Levine Eisberner LLC, our team routinely helps employers sift through the murky waters of employment law. We help employers create a detailed business plan which reflects their goals and solidifies their workers’ employment status.