Independent Contractors vs Employees

When computing workers compensation premiums, it is important to know that independent contractors are not employees. Prior to 1990, the term ‘independent contractor’ was not defined. In the 1990 law, independent contractor was defined as someone whose actual conduct is not subject to the control and direction of the employer.

In 2003, the Legislature amended the definition of independent contractor to the six criteria below:

1. The independent contractor maintains a separate business with his or her own work facility, truck, equipment, materials, or similar accommodations;

2. The independent contractor holds or has applied for a federal employer identification number, unless the independent contractor is a sole proprietor who is not required to obtain a federal employer identification number under state or federal regulations;

3. The independent contractor receives compensation for services rendered or work performed and such compensation is paid to a business rather than to an individual;

4. The independent contractor holds one or more bank accounts in the name of the business entity for purposes of paying business expenses or other expenses related to services rendered or work performed for compensation;

5. The independent contractor performs work, or is able to perform work, for any entity in addition to or besides the employer at his or her own election without the necessity of completing an employment application or process; or

6. The independent contractor receives compensation for work or services rendered on a competitive-bid basis, or completion of a task or a set of tasks as defined by a contractual agreement, unless such contractual agreement expressly states that an employment relationship exists.

In order to meet the definition of independent contractor, in non-construction at least four of the six criteria must be met. In the construction industry, all six criteria listed above must be met.

Note: The “independent contractor” status of individuals engaged in certain agricultural, forestry, or farming occupations, and newspaper delivery persons, are not governed by the six criteria listed above, but rather by common law principles (Internal Revenue Service guidelines are often cited), pending a review of the actual business activity of the individual.