By: Attorney Samuel J. Spurney
At SB Law, clients regularly contact us stating that they want to hire an “independent contractor” to assist them in their business thinking that is the safest and most efficient relationship to have with their new hire. When considering whether a person will qualify as an independent contractor or will be deemed an employee, it is crucial to understand that such determination is solely based upon the facts and circumstances of each particular situation, and a person is not deemed an independent contractor just because they claim to be an independent contractor, or even if both parties agree that such person is an independent contractor.
In Wisconsin, a person must meet all nine parts of the applicable nine-part test to be classified as an independent contractor. If the person fails only one of the nine “tests” set forth below, the person will likely be deemed an employee of the business and the business will be subject to all applicable employment regulations and requirements, including worker’s compensation requirements.
When determining whether a person will be deemed an employee or independent contractor of the business, the applicable Wisconsin nine-point test is as follows:
Test Number One – Maintain a Separate Business
The person maintains a separate business with its own office, facilities, materials, and equipment.
Test Number Two – Obtain an FEIN or Have Filed Business or Self-Employment Tax Returns
The person must have obtained a separate Employer Identification Number (EIN) from the Internal Revenue Service (IRS) or has filed business or self-employment income tax returns with the IRS pursuant to work performed within the previous year.
Test Number Three – Operate Under Specific Contracts
The person must operate under contracts to perform specific services or work for specific amounts of money and under which the person controls the means of performing the services on behalf of the business. An independent contractor must be in control of how and when they perform their work or services on behalf of the business. Generally, an independent contractor contracts with more than one business to perform services and one business is not the sole source of the independent contractor’s revenue.
Test Number Four – Main Expenses
The person incurs the main expenses related to the service that he or she performs under contract for service for the business.
Test Number Five – Satisfactory Completion of Work or Services
The person is responsible for the satisfactory completion of services that it contracts to perform and is liable for a failure to complete the work or service.
Test Number Six – Receive Compensation Under a Contract Per Job, On Commission, or Competitive Bid Basis
The person receives compensation for work or service performed under a contract on a commission or per job or competitive bid basis and not on any other basis (i.e. they are not paid a set salary for the services they are providing).
Test Number Seven – Realize a Profit or Suffer a Loss
Under the contract for the person’s services on behalf of the Business, there must be the ability for such person to realize a profit or a loss.
Test Number Eight – Recurring Business Liabilities or Obligations
The person has continuing or recurring business liabilities or obligations (e.g. has signed a lease, incurs professional and/or other related fees, incurs business insurance expenses, etc.).
Test Number Nine – Relationship of Business Receipts to Expenditures
The success or failure of the independent contractor must depend on the relationship of the independent contractor’s business revenue to its expenditures. A business satisfies this Test by showing that the person is not guaranteed to receive income from the business – there must be a possibility that the independent contractor could show a loss.
As you can see, the above nine-part test is not necessarily clear and requires a very close examination of the facts and circumstances regarding the relationship between the potential independent contractor and the business. It is essential to remember when making the determination of whether a person will qualify as an independent contractor, the person must meet all nine parts of the above nine-point test to be classified as an independent contractor.
Steimle Birschbach, LLC. Straight talk. Solid Advice. That’s our way of doing business.
This blog post is provided for informational purposes only and by its very nature is very general. This information is not intended as legal advice.
The post Business Owners Beware: Is Your New Hire an Independent Contractor or Employee? appeared first on Steimle Birschbach, LLC.