One of the first questions that must be answered in making this determination is: For what purpose is the classification being made? For tax reasons? Concern about a worker’s compensation claim? The reason this is the first question that must be answered is that different tests are used to determine your status depending on the reason for making the determination. For example, the Internal Revenue Service (“IRS”) uses a 20-factor test to determine a worker’s status for tax purposes and Colorado law uses a different 9-factor test to determine a worker’s status for the purposes of Worker’s Compensation claims and eligibility for Unemployment Insurance. Needless to say, it can be very tricky determining your status and applying the correct test.
Once you have determined for what purpose you are being classified, then you can begin applying the proper test. All of the tests used include a number of factors that are balanced against each other, but the number of factors and the criteria included varies. The ultimate question relates to the level of control the employer has over the worker, but the inquiry can be difficult and a detailed fact analysis may be required. Some factors that are often used include the manner in which a worker is paid, whether the worker owns his or her own business independent of the work they complete for the employer, whether the employee works for one or more employers and whether the worker owns her or his own tools and equipment.
Under Colorado law, a worker and her or his employer can create and sign a written document that creates a rebuttable presumption that the worker is in fact an independent contractor. The written document should address all 9 factors used to determine a worker’s classification to increase the likelihood that it will be upheld if it is reviewed by a court.
Correct categorization is very important and employers can face serious penalties for incorrectly classifying their employees as independent contractors. Additionally, incorrect classification may raise red flags with the IRS. If you are in the situation where you do not know if you are an employee or independent contractor or you suspect you have been misclassified, it is a good idea to consult an employment attorney to help clarify the situation.
By Jacob Allen