PART 2 - Covered and Excluded Employment
Unemployment Insurance Handbook for Employers (UCB-201-P)
Section 2 - Tax
- Employee vs. Independent Contractor
- Employment Excluded by Statute
- Employment Excluded by Employer Election
- Tax vs. Benefit Exclusion
A. Employee vs. Independent Contractor
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.
Penalties for misclassification of workers:
- Any employer engaged in a construction industry, who knowingly or intentionally provides false information to the department for the purpose of misclassifying an employee as a non-employee will be assessed a penalty of $500 for each employee who is misclassified not to exceed $7,500. Criminal penalties may also apply.
- Any employer engaged in a construction industry, who through coercion requires an individual to adopt the status of a nonemployee shall be assessed a penalty of $1,000 for each individual so coerced, not to exceed $10,000.
- Any employer that makes false statements to the department or fails to file necessary reports with the department is subject to civil and criminal fines and imprisonment.
- Any employer that discriminates or retaliates against an individual because the individual claims benefits or attempts to induce an employee to waive their rights to unemployment benefits is subject to criminal fines and imprisonment.
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
- 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
(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
- 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 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
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 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.
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:
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B. Employment Excluded by Statute
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:
- 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;
- Effective October 1, 2016: Service of a real estate “licensee” if
90% or more of the worker’s
remuneration is directly related to sales or other output. In order for this exclusion to apply,
the individual must perform the services under a written contract that provides that the individual
will not be treated as an employee with respect to the services for federal tax purposes.
- 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). (Excluded even though covered by FUTA).
- 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
- 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
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C. Employment Excluded by Employer Election
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
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 less than $500,000 for the calendar year preceding the year of the 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
Employers who have elected to exclude their principal corporate officer wages can rescind the exclusion (reelect coverage) if they determine the exclusion no longer benefits them. Employers must notify the department before March 31 of the year they wish to reelect coverage of corporate officers
Wisconsin law allows employers to exclude principal officers and reelect coverage of those officers only once. Therefore, future elections to exclude principal officers will not be approved.
For further information, please contact us at:
- Telephone: (608) 261-6700
- Deaf, hearing or speech-impaired callers may dial 7-1-1 for Wisconsin Relay Service
- 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;
- 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 dial 7-1-1 for Wisconsin Relay Service
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D. Tax vs. Benefit Exclusion
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: June 1, 2019
Content Contact: UI Tax