Misclassification of Employees as Independent Contractors

The misclassification of workers as independent contractors rather than employees is a serious problem in Rhode Island and across the country.

When employers misclassify workers
  • They avoid paying many state and federal taxes.
  • They avoid providing workers compensation coverage for their employees.
  • They may fail to follow wage, contractor registration or other labor laws.
  • They have a competitive advantage and may underprice legitimate employers.

The Federal Government Accountability Office reports that the underpayment of unemployment, Social Security, income taxes, and workers' compensation are exceeding billions of dollars federally and millions of dollars at the state level.

Rhode Island employers must generally withhold state and federal income taxes, Social Security and Medicare taxes, and pay unemployment taxes on wages paid to employees. They must also pay Workers' Compensation premiums on the employees.

An employee is anyone performing service for an employer who controls what will be done and how it will be done by the worker.

Independent Contractors have an independent trade, business or profession. Their services are offered to the public and they have the right to control the means and methods of how the work is performed.

If an employer retains the right to control what will be done and how it will be done, the individual is likely performing services as an employee.


If you have questions, contact Phil D'Ambra at (401) 574-8785 or email philip.dambra@tax.ri.gov


About the Task Force

Article 8 of the FY15 state budget established the Task Force on the Underground Economy and Employee Misclassification to enhance collaboration between government agencies focused on protecting Rhode Island’s workforce and ensuring a level playing field for businesses in our state.

The task force is charged with:

  • Fostering voluntary compliance with the law by educating business owners and the workforce about properly classifying workers and applicable requirements;
  • Protecting the health, safety and benefit rights of workers, and
  • Restoring competitive equality for law-abiding businesses.

The task force Task Force has representation from:



Worker Missclassification Quiz

Disclaimer: This online quiz may help provide a work relationship evaluation based on the your answers. It is not an official employment or non-employment determination, but a helpful tool when trying to determine whether a worker(s) is/are misclassified.

Each reported misclassification is investigated on a case-by-case basis. The following questions may help you decide whether or not to report your case.

The Rhode Island Task Force follows the Internal Revenue Service (IRS) Guidelines when determining if workers are considered Independent Contractors. Visit the IRS website for more information on Independent Contractors.

Under common law rules, an employer-employee relationship exists when the business for which the services are performed has the right to direct and control the worker who performs the services. This control refers not only to the result to be accomplished by the work, but also the means and details by which that result is accomplished. Three major categories should be considered when determining the correct classification of a worker. These are behavioral control, financial control, and the relationship of the parties.

Behavioral Control

Behavioral Control refers to the right to direct and control the details and means by which the worker performs the required services. Factors considered include:

  • When and Where to do the work - Does the business have the right to supervise the worker in the performance of the service?
  • What tools or equipment to use - Does the business provide the needed tools or equipment to perform the service?
  • What workers to hire to assist with the work - Does the business require that all services be performed by the worker personally?
  • Where to purchase supplies and services - Does the business provide the supplies needed to perform the service?
  • What work must be performed by a specified individual (including ability to hire assistants) - Is the worker self-employed in a trade, occupation, or business similar to the services provided?
  • What routines or patterns must be used - Does the business have the right to change the methods used by the worker or direct that person on how to do the work?
  • What order or sequence does the worker need to follow?
Financial Control

Financial Control - Economic aspects of the relationship between the parties are analyzed in determining worker classification. Factors that demonstrate financial control include:

  • Does the worker have a significant investment in facilities and equipment?
  • Are the worker's business expenses reimbursed? Is the worker allowed a drawing account for advances against pay?
  • Does the worker make the services available to the relevant market?
  • How is the worker paid? Are the workers eligible for sick pay, pensions, bonuses, paid holidays, vacations, personal days, fringe or insurance benefits from the business?
  • Does the worker have an opportunity for profit or loss? Can the worker incur a financial risk in the performance or non-performance of services? (i.e. equipment, unfinished duties)
Relationship of the Parties

Relationship of the Parties - The relationship of the parties is important because it reflects the parties' intent concerning control. These factors include:

  • Intent of parties. Is there a written contract? Are there any agreements (verbal or written) prohibiting competitions between the worker and the business while the worker is performing services or during any later period?
  • Tax Forms. Does the worker receive a Form W-2 or 1099-MISC?
  • Incorporation. Is the worker providing services as a recognized corporate entity?
  • Employee benefits. Does the worker receive employee benefits traditionally associated with employee status?
  • Discharge and/or termination. What are the circumstances under which a worker can terminate their relationship? Can the relationship be terminated by either party without incurring liability or penalty?
  • Is there a long-term or continuing relationship between worker and business? Is the worker represented to the business' customers as an employee? Was the worker previously classified as an employee by the business?
  • Regular business activity - Are the services provided by the worker a key aspect of the regular business of the company? Are workers free to perform services for other businesses or individuals during normal business hours? Does the worker furnish a time record to the business? Does the business establish a quota or work performance norm for the worker?

*Relevant evidence in all three categories must be weighed to determine the worker's status.*


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