So your business is growing and you want to expand to hire independent contractors out of state. Will it be easier to do this in other states? Will it be more difficult? Can you assume that your practices and contracts in Washington State will be sufficient to meet requirements in other states?
Here are a few key things to consider when hiring out-of-state contractors:
- States have their own – sometimes unique – independent contractor laws. In Washington, our independent contractor laws are set and regulated by various state agencies, e.g., the Department of Labor & Industries (L&I), regulating whether independent contractors are covered or exempt from the workers’ compensation taxes; Employment Security Department (ESD), regulating whether independent contractors are covered or exempt from the unemployment insurance taxes, etc. And for L&I and ESD, as many of you know, there are additional agency-specific laws and exemptions that would then apply. Other states operate similarly, with various layers of agency-specific compliance requirements. So in hiring contractors in other states, you’ll want to know what the independent contractor laws are generally; what are the specific agencies that regulate independent contractor classification; what are the specific independent contractor laws promulgated by these agencies; and whether there are exemptions that you can benefit from. In short, it’s simply not safe to assume that what works for Washington will work in other states. Indeed, it’s risky to do so.
- Your independent contractor agreement may need to be modified. As you know, having a proper written independent contractor agreement is a key part of compliance. In certain states, not only are you required to have an independent contractor agreement, but the state may require you to include specific recitations, declarations, disclosures, etc. So proper compliance in these states will require revisiting your agreement, and modifying your contract accordingly. Fortunately, if you’re using agreements we’ve prepared for you, the majority of the agreement should be just fine, and modifications will generally be supplemental, and minimal in most cases.
- Some states are better than others for hiring independent contractors. Be careful about what states to venture into. In Arizona, for example, you can comply with independent contractor laws by having an independent contractor agreement drafted in accordance with guidelines set by the state, and by having contractors sign certain declarations, thus virtually assuring yourself that you’re in compliance with legal requirements. Independent contractor law heaven will probably be something like Arizona, I’m inclined to believe. While if you went to California, the starting point is to assume that your independent contractor classification is wrong, unless and until you find a legal window to do it properly. Thus it is critical to know whether your chosen state is independent-contractor friendly or not.
- Keep out-of-state independent contractors from also being considered Washington workers. Hiring an out-of-state contractor incorrectly can result in that worker being considered both a Washington worker, on whom various -in-state worker taxes are due, as well as an out-of-state contractor who is then simultaneously subject to IC laws in their state of residence. This could happen, for example, where the out-of-state contractor resides out of state, but has sufficient contacts/physical presence with Washington where our state’s laws will require that they be treated as Washington workers. So knowing the “whose-worker-is-it” rules can help keep you from having to comply with IC laws of two states.
- State-specific independent contractor licensing requirements. In Washington, in order to be an independent contractor, there are certain licenses and registrations that the independent contractor may be required to have. Other states will similarly have certain minimum requirements of independent contractors, and you’ll therefore want to make sure independent contractors you hire are meeting or exceeding the minimum requirements.
Bottomline, hiring contractors in other states can be a very positive thing, but you’ll definitely want to take a “know-before-you-go” approach.
