Tuesday, April 21, 2009

Independent Contractor vs. Employee

What constitutes an employee versus an independent contractor?

How one answers this question has an impact on the applicability of many regulations. For example, if a construction worker is an employee, they must be paid prevailing wages. If, on the other hand, a worker is not considered to be an employee, but an independent contractor, they must then be registered as a contractor with the Washington State Department of Labor and Industries.

Substitute Senate Bill 5904 was approved by the Washington State Legislature and signed by Governor Christine Gregoire. This bill establishes a seven-fold test to determine when an individual is not considered to be a "laborer, worker, or mechanic" under Washington State prevailing wage laws, but is, in fact, an independent contractor.

The thrust behind the law appears to be an attempt to get at what is often termed the "underground economy" of contractors who skirt various government regulations such as contractor registration and payment of various taxes and premiums.

In addition, a court in the State of Massachusetts recently ruled on the question of what is an independent contractor versus an employee. To read a brief article on this subject, click here. For more detailed information, the Attorney General for Massachusetts has issued an advisory opinion on the proper classification between employees and independent contractors. Visit their website to read the advisory opinion.

There are significant risks involved for both businesses and government agencies for failure to ensure the proper classification between employees and independent contractors.

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