Employers often ask about what defines an employee versus an independent contractor. A new West Virginia statute offers greater clarity on the differences between each of these categories of workers.
The West Virginia Employment Law Workers Classification Act, which went in to effect on June 9, is designed to help employers understand the criteria for deciding whether a claimed independent contractor can be exempt from state employment laws and regulations — such as those governing wages, overtime pay, workers’ compensation and unemployment insurance.
The new law requires that for a worker not to be considered an employee, there must be a contract that explicitly states the intent of the hiring entity that the individual should be an independent contractor. The contract must also include an acknowledgement that the worker understands the following:
- They are providing services as an independent contractor.
- They will not be treated as an employee.
- They will not be provided workers’ compensation or unemployment benefits.
- They are obligated to pay all applicable federal and state income taxes and no tax withholdings from payments will be made on their behalf.
- They are responsible for the majority of the supplies and other variable expenses incurred.
The law goes on to list the following criteria for considering a worker an independent contractor:
- Having control over the amount of time personally spent providing services
- Having control over where the services are performed
- Not being required to work exclusively for one principal
- Being free to exercise independent initiative in soliciting others to purchase their services
- Being free to hire employees or to contract with assistants to perform all or some of the work
- Being required to perform additional services without a new or modified contract
- Obtaining a license or other permission from the principal to utilize any workspace of the principal in order to perform the work
- Having not been reclassified as an employee by the IRS after the hiring entity has been audited by the IRS
- Being responsible for maintaining and bearing all costs of any required business licenses, insurance, certification or permits required to perform the work
If a worker meets at least three of those criteria, he or she is not an employee and is not entitled to benefits, workers compensation or unemployment insurance.
The new law provides a safe harbor for organizations that properly spell out the nature of the independent-contractor relationship and the criteria that are met. Employers should protect themselves by updating contracts to ensure compliance. Our employment law group can draft or review contracts between your organization and independent workers and answer questions you may have about existing employees or contractors.
The experienced employment attorneys at Pullin, Fowler, Flanagan, Brown & Poe, PLLC advise public and private employers alike on West Virginia and federal employment law and defend them when necessary. To arrange a consultation, call us at 304-344-0100 or contact us online.