Unemployment Insurance Handbook for Employers (UCB-201-P)
Section 2 - Tax
PART 2 - Covered and Excluded Employment
- Employee vs. Independent Contractor
- Employment Excluded by Statute
- Employment Excluded by Employer Election
- Tax vs. Benefit Exclusion
Effective January 1, 2011, the definition of employee was amended for private sector employers other than nonprofits and trucking and logging operators. This definition is used to determine which individuals who provide services for them need to be included in the Unemployment insurance program. In other words, it determines when an individual's risk of unemployment belongs with an employing unit rather than with an individual who bears the risk of his or her own unemployment. The latter is known as an independent contractor. The amendment was made to clarify the test used to determine if an individual providing services is an employee or an independent contractor under the Unemployment Insurance Law. See the definitions of employee below for services performed both before and after January 1, 2011 under Other Private Sector Employers.
Wisconsin's Unemployment Insurance Law defines the term "employee" differently for individuals who provide services in the trucking or logging industry and individuals working for government units and nonprofit organizations from individuals working in other industries.
- Trucking, Logging, Government Unit
or Nonprofit Organization.
An individual working as a logger or trucker or providing services to a government unit or nonprofit organization will be considered an employee unless:
- The individual is free from the employing units direction and control, not only under the terms of any written contract, but also in the day-to-day performance of such services. The individual must be free from your direction and control in regard to the details of when, where, and how their services are performed. In addition, although an employer can determine what the desired end results are, you cannot control the details of how the worker accomplishes those results. If you have the right to direct and control the logger or trucker, even if you never exercise that right, the individual is an employee and not an independent contractor.
- The services have been performed in an independently established trade, business or profession in which the individual is customarily engaged. Generally this means that the logger or trucker has an investment from which he/she may realize either a profit or a loss. In addition, the individual alone must have the right to sell or give away that business investment.
- See DWD 105 (Relationship Of Carriers And Contract Operators) and DWD 107 (Employment Relationships In The Logging Industry) for additional details.
Unless both of the above conditions are met, the logger, trucker or individual providing services to a government unit or nonprofit organization is an employee and not an independent contractor.
- Other Private Sector Employers.
This definition first applies with respect to services performed after December 31, 2010. The employing unit must satisfy the Department that the individual by contract and in fact performs services free from control or direction by the employing unit. In making this determination, the following nonexclusive factors may be considered:
- Whether the individual is required to comply with instructions concerning how to perform the services.
- Whether the individual receives training from the employing unit with respect to the services performed.
- Whether the individual is required personally to perform the services.
- Whether the services of the individual are required to be performed at times or in a particular order or sequence established by the employing unit.
- Whether the individual is required to make oral or written reports to the employing unit on a regular basis.
In addition to providing services free from direction and control, the individual must meet six or more of the following conditions:
- The individual advertises or otherwise affirmatively holds himself or herself out as being in business.
- The individual maintains his or her own office or performs most of the services in a facility or location chosen by the individual, and uses his or her own equipment or materials in performing the services.
- The individual operates under multiple contracts with one or more employing units to perform specific services.
- The individual incurs the main expenses related to the services that he or she performs under contract.
- The individual is obligated to redo unsatisfactory work for no additional compensation or is subject to a monetary penalty for unsatisfactory work.
- The services performed by the individual do not directly relate to the activities conducted by the employing unit retaining the services.
- The individual may realize a profit or suffer a loss under contracts to perform such services.
- The individual has recurring business liabilities or obligations.
- The individual is not economically dependent on a particular employing unit with respect to the services being performed.
The following definition applies with respect to services performed prior to January 1, 2011. An individual must satisfy at least 7 of the following 10 criteria to be considered an independent contractor:
- The individual must either have or have applied for a Federal Employer Identification Number (FEIN).
- The individual must have filed federal self-employment or business tax returns in the previous year based on the type of service they are providing to the employing unit or, in the case of a new business, in the year in which such services were first performed.
- The individual must maintain a separate business with his/her own office, equipment, materials and other facilities. Does the worker have what is needed or essential to do their job or are essentials provided by the employing unit? Consider the type of business when determining what business assets are reasonable to expect the individual to have. For instance, it would be reasonable to expect that a machinist would have tools and equipment and a facility other than his/her home from which to work. It would not be as likely that a computer consultant would have a facility other than an office in his/her home but a computer, modem, and fax would be essential.
The individual must operate under contracts to perform specific services for specific amounts of money and under which the individual controls the means and method of performing the services. An agreement between the worker and the employing unit is a contract, whether that agreement is oral, written, or limited to the practices followed.
An employing unit may direct what should be done by an independent contractor, but the individual should determine how to accomplish the job.
- The individual should incur the main expenses related to the services being performed. If expenses are reimbursed by the employing unit, it is unlikely that the individual will meet this criterion.
- The individual is responsible for the satisfactory completion of the services and is liable for failure to satisfactorily complete the services. If rework is necessary, will the worker be required to perform the work at no additional cost to the employing unit? If the work is not completed according to contract, can the employing unit sue for breach of contract? An independent contractor is most likely responsible for completing the job to the satisfaction of the employing unit.
- The individual receives compensation for services performed on a commission or per job or competitive bid basis and not on any other basis. An individual paid strictly by the hour would not meet this requirement unless the hourly rate is part of a bid or per job agreement.
- The individual must be able to realize a profit or suffer a loss under contracts to perform services. If the worker has expenses that may exceed income, this criterion would be met. This would be true, for example, if an individual underbid and material costs exceeded money received for the job.
- The individual has recurring business liabilities or obligations. If the worker has liabilities that continue whether or not he/she has customers, this item would be met. Some examples of liabilities are lease payments, insurance, advertising, professional fees, rent, and interest.
- The success or failure of the individuals business depends on the relationship of business receipts to expenditures. If success or failure of the workers business depends on something else, such as a single source supplier or a single employing units sales license, this requirement is not met.
Under current law, it is incumbent on the employing unit to satisfy the Department that the applicable conditions are met in order to consider the worker an independent contractor. The Department will work with both the employing unit and the individual to gather the necessary information. However, it is ultimately the employing units responsibility to respond to the Department.
If you have questions regarding the independent contractor provisions of the law:
Individuals who meet the statutory definition of employee but who perform certain types of services are specifically listed or designated as not performing covered employment. The result is that their wages are not reportable/taxable (unless they are taxable under FUTA) nor will they be entitled to receive UI benefits based on those wages. The following excluded employment is grouped by types of employers that are entitled to the exclusion for UI tax purposes:
- For All Employers:
- Service performed by an individual who is enrolled at a nonprofit or public educational institution, which combines work experience with academic instruction in a full-time program for credit at the institution (work/study student);
- Service performed as a student nurse, medical intern or patient in the employ of a hospital; or
- Service performed in any calendar quarter in the employ of an organization exempt from federal income tax under section 501(a) of the Internal Revenue Code, other than an organization described in section 401(a) or 501(c)(3), or under section 521 if the payment for such service is less than $50.00 in a calendar quarter (e.g., officer of fraternal organization or labor union with wages of less than $50.00 in a calendar quarter).
- Service by a nonresident alien for the period he or she is temporarily present in the United States as a nonimmigrant if the nonresident alien has F, J, M or Q visas. The spouse and children of the nonresident aliens are also excluded.
- Services performed by certain AmeriCorps participants funded under certain special federal grants to governmental, nonprofit or educational entities.
- For All Employers Except Government Units and Nonprofit Organizations:
- Service performed by an individual in agricultural labor if the employer is not subject to the general agricultural coverage conditions (see Part 1: Establishing Coverage);
- Service as a domestic in the employ of an individual in that individual's private home if the employer is not subject to the general domestic coverage conditions (see Part 1: Establishing Coverage);
- Service as a caddy on a golf course (for Benefit purposes only);
- Service as an individual selling or distributing newspapers or magazines on the street or from house to house. (for Benefit purposes only - for Tax purposes only those under age 18);
- Service covered under the Federal Railroad Unemployment Insurance Act;
- Service as an insurance agent or real estate salesperson working solely on a commission basis;
- Service as an unpaid corporate or association officer;
- Service by an individual employed entirely outside Wisconsin;
- Service by a sole proprietors father, mother, spouse or by a son or daughter, or by a child or stepchild if legally adopted, under the age of 18 for his or her parents. This does not apply to a corporation and only applies to a partnership if the relationship of the exempt employee is excludable for all partners;
- Service as a court reporter paid on a per diem basis (for Benefit purposes only);
- Service performed, other than in a permanent retail establishment, by an individual engaged in the selling or soliciting the sale of consumer products for use, sale, or resale by the buyer if substantially all of the remuneration is directly related to the sales or other output related to sales rather than to hours worked;
- Maritime service excluded from coverage under the Federal Unemployment Tax Act; or
- Service by an individual leasing a taxicab if:
- The individual retains the income earned through use of the taxicab under the lease;
- The individual receives no direct compensation from the lessor under the lease; and
- The amount of the lease payment is not contingent on the income generated by the use of the taxicab
- Personal care or companionship services performed for an ill or disabled family member who directly employs the individual providing services is excluded. For purposes of this exclusion, "family member" means a spouse, parent, child, grandparent, or grandchild of an individual, by blood or adoption, or an individual's step parent, step child or domestic partner within the meaning of Chapter 770.01(1).
- Service performed after 01/05/14 by an inmate of a state or a federal prison.
- For Government Unit, Indian Tribe and Nonprofit Organizations:
- Service by an individual under a work relief or work training project financed by state or federal funds, unless coverage is required as a condition in the state or federal program;
- Service by an individual receiving rehabilitation through a rehabilitation program; or
- Service by an inmate of a custodial or penal institution.
- For Nonprofit Organizations Only:
- Service in the employ of a church or convention or association of churches;
- Service in the employ of an organization operated primarily for religious purposes and operated, supervised, controlled or principally supported by a church or convention or association of churches; or
- Service by a duly ordained, commissioned or licensed minister of a church in the exercise of such ministry or by a member of a religious order in the exercise of duties required by the order.
- For Governmental Unit or Indian Tribe:
- Service of an official elected by vote of the public;
- Service as an official appointed to fill part or all of the unexpired term of a vacant position normally filled by election;
- Service as a member of a legislative body or judiciary of a state or political subdivision;
- Service as a member of the Wisconsin National Guard in a military capacity;
- Service solely on a temporary basis in case of fire, storm, snow, earthquake, flood or similar emergency; or
- Service in a position designated as a major nontenured policy or advisory job, or in a position designated as a policy or advisory position not normally requiring service of more than 8 hours per week.
- For Educational Institutions Only:
- Service for an educational institution by a student enrolled and regularly attending classes at the institution; or
- Service by the spouse of a student working under a program to provide financial assistance to the student if written notice is given at the start of employment that it is not covered for unemployment insurance.
The employment exclusions that follow are optional. You must make an election to exclude this employment and must meet the specified criteria before the election will be approved.
- Corporate Officer Exclusion
Section 108.02(15)(L) allows small employers to elect to exclude the wages of all principal corporate officers provided that they have a direct or indirect ownership interest in the corporation.
The result is that you are not required to report the wages or pay state UI taxes on the wages of corporate officers who own or control 25% or more of the business. These excluded officers will not be entitled to draw UI benefits.
Criteria which must be met:
- The corporation must file an Election to Exclude All Principal Officers, Form UCT-7937. This must be filed by March 31 of the year you're requesting to elect out of coverage. In the case of new employers, it's due when the first quarterly report is due.
- The corporation must be a small employer. Annual taxable payroll must be $500,000 or less for the calendar year preceding the year of election.
- The principal officer(s) must have a direct or indirect substantial ownership interest in the corporation. An officer has direct or indirect substantial ownership if one-fourth (25%) of the ownership interest is owned or controlled by the officer.
- The department will issue an Initial Determination, approving or rejecting the election, based upon the criteria above. The election remains in effect as long as the conditions are met or until you reelect coverage of wages for the corporations officers. Once you reelect coverage, you cannot again elect the Corporate Officer Exclusion.
- It is not always beneficial to elect the Corporate Officer Exclusion. The Federal Unemployment Tax Act (FUTA) does not recognize this exclusion and therefore, since no state UI tax has been paid on the officers' wages, you pay the full 6.0% FUTA tax on the excluded officers' wages.
- However, if other employees are on your payroll in addition to excluded corporate officers and their wages exceed $7,000, "credits" are generated which may offset the additional FUTA tax on the excluded officers.
To help determine if a savings will be realized, please use Form UCT-8055-E
For further information, please contact us at:
- Email: firstname.lastname@example.org
- Telephone: 608-261-6700
- Deaf, hearing or speech-impaired callers may reach us through WI TRS
- Seasonal Employer Designation
Certain employers may elect to be designated as Seasonal Employers. Ultimately, this could result in a lower tax rate. Seasonal employees may not be eligible to collect UI benefits, but wages would still be reported and taxes would continue to be paid on these wages. As a seasonal employer, you would also pay an additional 2% solvency tax on all of your taxable payroll for the calendar year, to a limit of the maximum rate in effect for the calendar year.
Criteria which must be met:
- You must file an Election for Seasonal Employer Designation, Form UCT-9315**, by May 31 of the year prior to the year you're requesting your designation as a seasonal employer to begin.
- You must be in a tourism, recreational or tourist service, agricultural production, agricultural services, forestry, commercial fishing, hunting or trapping industry (DWD 147, Wis. Administrative Code).
- You must customarily operate during two calendar quarters within a year. These two quarters are regarded as the season.
- At least 75% of the wages you pay must be for work performed during the two seasonal quarters.
- You are not delinquent in making any UI reports/payments. We will examine the application and issue a determination by June 30 as to your seasonal status. We also examine each seasonal employer every year to determine if the above conditions continue to be met.
When designated as a Seasonal Employer:
The employment IS excluded (for benefit purposes) and no benefits are allowed IF:
- The worker received written notice before performing any services that their work may be considered excluded employment for UI purposes;
- You've employed the worker for less than 90 days during any season which includes a portion of the worker's base period; and
- The worker has not earned $500 or more during his/her base period from another employer, which is covered by the UI law of any state or federal UI law.
Charging of UI Benefits:
- Your account is charged if the worker worked for you 90 days or more (regardless of outside earnings).
- Your account is not charged if the worker worked for you less than 90 days and had outside earnings of $500 or more.
**To obtain an election forms or for further information, please contact us at:
- Email: email@example.com
- Telephone: 608-261-6700
- Deaf, hearing or speech-impaired callers may reach us through WI TRS.
Work for an employer may be covered for UI tax purposes even though it is excluded for benefit purposes (e.g., work for designated seasonal employers). However, work excluded for tax purposes is generally excluded for benefit purposes. (Refer to the chart, Employment that is Excluded for Benefit Purposes, in Section 1, Part 7 for a summary comparison.)
Updated: November 20, 2015
Content Contact: UI Tax