Independent Contractor Tests Series: State Tests

As the federal government and state agencies crackdown on businesses that misclassify employees as independent contractors, it is increasingly important that companies correctly classify their workers. But there is no standard regulation for what constitutes a legal independent contractor. This series will examine the different tests and guidance used by the multiple federal and state agencies to determine if workers can be considered independent contractors.We’ve already discussed what the IRS and Department of Labor look at when determining whether a worker is a W-2 employee or a 1099 Independent Contractor. So if it appears that a worker qualifies as an independent contractor under those guidelines, there should be no problem, right? Not necessarily. States can have different guidelines on what constitutes an independent contractor for issues like workers’ compensation, unemployment, and state-specific wage and hours laws.Some states adopt the IRS guidelines we reviewed in the first blog of this series. Others use other “tests” and guidelines. One of the most common “tests” states use to determine whether someone is an employee or an independent contractor for unemployment purposes is the ABC Test. Under this test, in order to be considered an independent contractor a worker must:

• Be free from direction or control from the company.
• Perform services outside the usual course or places of business of the company.
• Engaged in an independently established trade, occupation, profession, or business wholly apart of the company.

It would be impossible to go through the various guidelines each state uses when determining how to classify employees. The important thing for companies to know is that not all states follow federal guidelines and that the rules can change by state. Companies must make sure if they are going to use independent contractors that they are following the federal guidelines as well as any regulations or “tests” set forth by the states in which they operate.This article is for informational purposes only and should not be considered legal advice.