Does Seattle’s $15 Minimum Wage Apply to Businesses with Independent Contractors? No, But…

Seattle this month enacted legislation to phase in a $15 minimum wage for employees over the next several years.  A summary of the legislation is available here.

While the legislation clearly applies to businesses with employees in Seattle, does the $15 minimum wage also apply to businesses with independent contractors? The short answer is no. The ordinance expressly applies to “employees,” who are defined in the Seattle Municipal Code as “any individual employed by an employer.” When a service provider is a bonafide independent contractor under applicable tests, that provider is not in employment as a matter of law, and is therefore not “an individual employed by an employer.”

However, if a business is classifying a worker as an independent contractor when that worker should have been classified as an employee, then that misclassified independent contractor would almost certainly be covered by Seattle’s ordinance, and would have basis for a minimum wage complaint if the worker’s compensation falls below minimum wage.

So what can businesses with independent contractors do to best ensure that they don’t face a Seattle minimum wage complaint down the road?

First, ensure that workers designated as independent contractors are, in fact, independent contractors under applicable tests. While it is unclear what independent contractor test the City of Seattle would choose to apply in its analysis, presumably the city would look to Washington’s Minimum Wage Act’s independent contractor test, which is a particularly difficult test to pass because it looks at a service provider’s “economic dependence” on its contract partner in determining whether a provider is a contractor or employee.  If a provider is economically dependent on its contract partner, the contractor could be considered an employee for minimum wage purposes.

Second, evaluate your independent contractors’ compensation to ensure that total payment at least amounts to Seattle’s designated minimum wage (as phased in).  In this way, even if a contractor is deemed to be an employee, there would be no minimum wage violation.

Finally, note that these wage considerations are not simply concerns for Seattle businesses.  The legislation is not focused on where employers are located, but where the work is performed. Thus, if a certain amount of services are provided in the city (i.e. 2 hours in 2-week period), then the minimum wage obligations would apply whether the employer is based in Seattle, or outside the city.

Note that this is just our early assessment of the legislation. Independent contractors are not the focus of the legislation, and we will learn more about how it applies as/if the law goes into effect, and is developed.

For more information on how to comply with independent contractor obligations, consult with an experienced independent contractor law attorney, and check out 1099 Review™, a Mercer Law PLLC product, and Washington’s State’s first online independent contractor risk assessment tool and resource center.

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