Misclassification of workers is a serious issue
It is critical that employers correctly determine whether workers providing services to their business are independent contractors or employees. In order to be considered an independent contractor, a worker needs to meet certain criteria. A worker should not be classified as an independent contractor just because he or she wants to be, or because the employer wants the worker to be an independent contractor. It is not enough that the employer and the worker agree. Though it may be tempting to save money by classifying workers as independent contractors, misclassification can have serious financial and legal consequences.
Determining the difference between employees and independent contractors requires a detailed analysis. According to Title 72, Idaho Code, “employee” is defined as any person who has entered into the employment of, or who works under contract of service or apprenticeship with, an employer, as opposed to an “independent contractor” which is defined as any person who renders service for a specified recompense for a specified result, under the right to control or actual control of his principal as to the result of his work only and not as to the means by which such result is accomplished.
Simply put, an independent contractor is a person who provides goods or services to another entity under terms specified in a contract. Independent contractors retain control over their schedules and number of hours worked, jobs accepted, job performance, and how the job is ultimately completed. This contrasts with regular employees, who usually work at the schedule required by the employer and whose performance is directly supervised by the employer. However, these definitions alone do not adequately determine a worker’s status.
The Right to Control Test
In Idaho, a worker’s status as an employee or an independent contractor is determined based on the four main criteria commonly referred to as “the right to control test.” Considered collectively, the four right to control factors distinguish an employee from an independent contractor. The determination of status is open-ended because it requires a factual judgment over whether a case meets the overall test. This approach neither prioritizes criteria nor specifies a minimum number that must be met. The Idaho Supreme Court has repeatedly recognized that those cases where there is doubt about whether a worker is an independent contractor or employee are to be resolved in favor of finding the worker to be an employee.
- Compliance with instructions—Control is present if the person for whom the services are performed has the right to require compliance with instructions.
- Training—Training through meetings, attending classes, or apprenticeship with a more experienced worker indicates the right to control.
- Integration—Integration of the worker’s services into the principal’s business operations shows that the worker is subject to direction and control.
- Services rendered personally—If the services must be rendered personally, then the right to control is suggested.
- Hiring, firing, supervising and paying assistants—If the person for whom services are rendered hires, discharges, and pays workers, then that factor shows control over all workers. If a worker engages his own assistants, he may be an independent contractor.
- Set hours of work—Control is indicated if set hours of work are established by the person for whom services are rendered.
- Full time required—If the worker devotes substantially full time to the business of the person for whom services are rendered, such person has control over the amount of time the worker can work and impliedly restricts the worker from doing other gainful work.
- Order or sequence determined by principal—If the worker performs services in the order or sequence determined by the person for whom the services are performed, the worker is likely an employee.
- Oral or written reports—A requirement that the worker submit regular oral or written reports to the principal indicates control.
- Payment of business and/or traveling expenses—If the principal ordinarily pays the worker’s business or traveling expenses, then the worker is usually considered an employee.
- Working for more than one firm at a time—If a worker performs service for several unrelated persons or firms at a time, this indicates an independent contractor relationship.
- Making service available to the general public—If a worker makes services available to the general public on a regular and consistent basis, this indicates an independent contractor relationship.
- Competitive selection among subcontractors—If the principal uses some competitive means for reducing his own cost in selecting a subcontractor, then the principal may be a prime contractor instead of an employer.
- Payment on a regular, periodic basis— Payment by the hour, week, day, month or other regular periodic interval generally points to an employer-employee relationship.
- Realization of profit or loss—A worker who can realize profit or suffer a loss as a result of the worker’s services (beyond the profit or loss ordinarily realized by the employees) is generally considered an independent contractor.
- Doing work on the employer’s premises—If the work is done on the premises of the person for whom the services are performed, this shows control over the worker, especially if the work could be done somewhere else.
- Furnishing tools and equipment—If the person for whom services are performed furnishes significant tools, materials, or other equipment, this indicates a direct employment relationship.
- Significant investment—If the worker invests in facilities used in performing services and that are not typically maintained by employees, this indicates an independent contractor relationship.
- Realization of profit or loss—This factor overlaps the method of payment but addresses whether sale of the business assets would provide the worker with a gain or recovery. If so, he may be an independent contractor.
- Continuing relationship—A continuing relationship between the worker and the principal indicates a direct employment relationship, even if the work is performed at recurring irregular intervals.
- Right of employer to discharge—The principal’s right to discharge the worker without liability indicates a direct employment relationship.
- Employee’s right to terminate—If the worker has the right to stop working at any time without contractual liability, this is indicative of an employment relationship.
Contact the Industrial Commission for Additional Information
The information contained on this page and associated brochure (link) are designed to assist you in properly classifying workers in the State of Idaho for workers’ compensation insurance purposes only. If you have any questions, please contact the Employer Compliance Department at 208-334-6060 or by email at firstname.lastname@example.org.