Court provides latitude on independent contractor
The Colorado Supreme Court has delivered some good news to employers, giving them more leeway when arguing that someone is an independent, not an employee.
Whether someone is an independent contractor, the court ruled, doesn’t depend on a single factor or even a list of factors. Instead, it depends on the nature of the working relationship, and any relevant factors can be considered.
Ruling in the Softrock and Western Logistics cases, the court rejected the notion of a stringent, single-factor test for determining whether a worker is an employee or independent contractor for purposes of unemployment insurance tax liability and benefits.
These long-awaited decisions are critically important because they reverse decades of case law.
Both cases originally found the businesses liable for unemployment compensation premiums.
Under the Colorado Employment Security Act, employers must pay unemployment taxes on wages paid to employees, but not on compensation paid to independent contractors. Also, employees are entitled to collect unemployment insurance benefits under Colorado law but independent contractors are not.
The state Supreme Court’s new “totality of the circumstances” test include at least nine factors that can be used to determine a worker’s status:
Whether the employer:
- Require[s] the individual to work exclusively for the person for whom services are performed; except that the individual may choose to work exclusively for the said person for a finite period of time specified in the document;
- Establish[es] a quality standard for the individual; except that [the employer] can provide plans and specifications regarding the work but cannot oversee the actual work or instruct the individual as to how the work will be performed;
- Pay[s] a salary or hourly rate but rather a fixed or contract rate;
- Terminate[s] the work during the contract period unless the individual violates the terms of the contract or fails to produce a result that meets the specifications of the contract;
- Provide[s] more than minimal training for the individual;
- Provide[s] tools or benefits to the individual; except that materials and equipment may be supplied;
- Dictate[s] the time of performance; except that a completion schedule and a range of mutually agreeable work hours may be established;
- Pay[s] the individual personally but rather makes checks payable to the trade or business name of the individual; and
- Combine[s] [the employer’s] business operations in any way with the individual’s business, but instead maintains such operations as separate and distinct.
And, other factors, such as whether the worker:
- Maintains an independent business card, listing, address, or telephone;
- Has a financial investment such that there was a risk of suffering a loss on the project;
- Uses his or her own equipment on the project;
- Sets the price for performing the project;
- Employs others to complete the project; and
- Carries liability insurance.
While this is all good news for employers, we suggest it is still important to evaluate your worker classifications and ensure that they are properly classified as either independent contractors or employees.