Independent Contractor or Employee? New L&I Program Seeks to Help

State and federal agencies have long recognized that the determination as to who classifies as an independent contractor is a confusing one. As a result, agencies have been churning out guide after guide, advisory after advisory, task force after task force, seeking to better explain who qualifies as an independent contractor, and who should be classified as an employee.

In Washington State, misclassifying workers as independent contractors has been identified as one of the most common mistakes employers make when filing employment taxes, and agency audits of businesses are repeatedly bearing this out. To attempt to address this confusion, the Department of Labor & Industries (L&I) – one of the two state agencies, along with Employment Security Department, charged with ensuring that workers are properly classified as independent contractors – has put on seminars, assembled task forces, and published an Independent Contractor Guide … and yet confusion remains. Businesses are still classifying workers as independent contractors, when the law (or at least the agency’s interpretation of the law) would suggest otherwise.

In its most recent effort to assist businesses with getting the classification right, and avoiding the devastating effects of misclassifying workers as independent contractors, L&I has started a new program – Workers’ Comp Coverage Determinations – that allows businesses to  contact L&I for a determination on whether a worker designated as an independent contractor is in fact an independent contractor.  While the program is still being developed, the basic idea is that it allows businesses to explain their independent contractor practices to L&I and obtain a formal opinion from L&I regarding the worker’s independent contractor status.  If L&I makes the determination that the worker is in fact an independent contractor for whom the employer does not need to pay workers’ comp taxes, this determination “blesses” the employer’s classification, and prevents L&I from later claiming otherwise. Such a determination thus removes a lot of the risk and worry business owners have (or should have) about misclassifying workers.  On the other hand, if L&I determines that a worker is not an independent contractor, the determination will be advisory, and will not be binding on the business. Nor will it trigger any audit action i.e. employers will not be referred for an audit as a result of such a finding. Bottomline, then, the program provides employers an opportunity to get their independent contractor designations/classifications approved by L&I, or to receive a “heads up” or advisory opinion about what they are doing wrong.

Overall, I see this as a good thing. Where business owners want and need certainty that they are properly classifying workers as independent contractors, this program helps to provide such assurance, or to sound an important and necessary warning.

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