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There is a six part test that employers must utilize to determine if their workers are employees or independent contractors. The test is not statutory, meaning that the test is not found in the Wisconsin Statutes. Rather, the test is based on the common law, meaning the test is based on precedents, which are legal principles developed in earlier case law.
The Bureau of Labor Standards uses a six part test sometimes referred to as the "economic realities" test to determine whether the worker is economically dependent upon the employer.
Not all or even a majority of the six parts of the test need be met. The determination of whether a worker is an employee or an independent contractor must be based on all of the circumstances in the relationship between the parties, egardless of whether the parties refer to it as an employee or an independent contractor relationship.
Every employment situation is unique. The parties must carefully analyze the services provided by the worker and the relationship between the employer and the worker. The parties must then compare them against all of the factors in the six part test to determine if the worker is an employee or an independent contractor.
The degree of control exercised by the employer.
The first part of the six part test to determine if a worker is an employee or independent contractor is the degree of control exercised by the employer over the worker.
The degree of control exercised by the employer is the most important part of the six part test. In Spirides v. Reinhardt, a 1979 case decided by the United States Court of Appeals for the District of Columbia, the court held that if an employer has the right to control and direct the work of an individual, not only as to the result to be achieved, but also as to the details by which the result is achieved, an employer/employee relationship is likely to exist. If, after applying the factors that define the employer's right to control the worker to the specific employment situation, the employer determines that it has the right to control the worker, the worker is in all likelihood an employee, regardless of outcome of the other five parts of the test.
The following are a list of factors presented in question form that can assist in the determination of an employer's degree of control over the worker. The list of questions is not exclusive, and no single question is determinative.
If, after applying the questions to the specific employment situation, the responses lead to the conclusion that the employer controls the worker, the worker is in all likelihood an employee.
Case Studies
The department has provided case studies from state and federal court decisions and from LIRC decisions relevant to the factors that make up the employee/ non employee test. View the case studies
The worker's opportunity for profit or loss based upon his or her managerial skills.
The second part of the six part test to determine if a worker is an employee or an independent contractor is the worker's opportunity for profit or loss based upon his or her managerial skills.
A worker who can realize a profit or suffer a loss as a result of the worker's services is generally an independent contractor, but the worker who cannot is an employee.
Indications the worker is an independent contractor and not an employee include the worker being subject to a real risk of an economic loss for investments in equipment or supplies or for liabilities for expenses such as salary payments to employees the worker hires.
A worker who can earn a profit by performing his or her job more efficiently though the exercise of management skill is indicative of an independent contractor. A worker who loses his or capital investment through poor management decisions is also indicative of an independent contractor.
The risk that a worker will not receive payment for his or her services is common to both independent contractors and employees and does not constitute a sufficient economic risk to support classification as an independent contractor.
Case Studies
The department has provided case studies from state and federal court decisions and from LIRC decisions relevant to the factors that make up the employee/ non employee test. View the case studies
The worker's investment in equipment or employment of helpers.
The third part of the six part test to determine if a worker is an employee or an independent contractor is the worker's investment in equipment or employment of helpers.
If the worker invests his or her own money into equipment, such as tools or vehicles, that is an indication that the worker is an independent contractor.
If the worker uses his or her own tools or equipment while performing services for the employer, that is an indication the worker is an independent contractor.
If the worker is reimbursed by the employer for tools and supplies the worker uses on behalf of the employer, that is an indication the worker is an employee.
If the worker uses tools or equipment furnished by the employer, that is an indication the worker is an employee.
If a worker hires, supervises, and pays other assistants pursuant to a contract under which the worker agrees to provide materials and labor and under which the worker is responsible only for the attainment of a result, that is an indication the worker is an independent contractor.
If the person or persons for whom the services are performed (employer) hire, supervise, and pay assistants, that factor generally shows control over the workers on the job.
Case Studies
The department has provided case studies from state and federal court decisions and from LIRC decisions relevant to the factors that make up the employee/ non employee test. View the case studies
The degree of special skill required for the work.
The fourth part of the six part test to determine if a worker is an employee or an independent contractor is the degree of special skill required for the work.
Workers who have a special skill and exercise initiative in obtaining clients or jobs are more likely to be independent contractors. For example, some workers such as plumbers, electricians and accountants have special skills obtained through education and experience.
Workers whose jobs require a low level of skill and experience are more likely to be employees.
A worker with a special skill who advertises for work in the yellow pages, has business cards and has his or her own office is more likely to be an independent contractor.
A worker who performs routine tasks requiring little training in a facility belonging to the employer is more likely to be an employee.
A highly educated and skilled worker is not automatically an independent contractor because of the skill the worker possesses. For example, an accountant has a private practice. The accountant bears all the expenses of the practice and keeps all the fees from his or her clients. The accountant is an independent contractor. The accountant then closes his or her private practice and goes to work for a large accounting firm. The firm directs and controls what the accountant does by assigning work and setting hours and paying the accountant a salary and benefits. The accountant has become an employee.
Not all workers who do not possess special skills are employees. For example, a janitor who advertises his or her services and cleans offices for several different businesses may be an independent contractor because he or she is not under the direction and control of an employer.
Case Studies
The department has provided case studies from state and federal court decisions and from LIRC decisions relevant to the factors that make up the employee/ non employee test. View the case studies
The degree of permanence of the relationship between the parties.
The fifth part of the six part test to determine if a worker is an employee or an independent contractor is the degree of permanence of the relationship between the parties.
The following are a list of factors presented in question form that can assist in the determination of the degree of permanence of the relationship between the employer and the worker. The list of questions is not exhaustive and no single question is determinative.
Case Studies
The department has provided case studies from state and federal court decisions and from LIRC decisions relevant to the factors that make up the employee/ non employee test. View the case studies
Whether the services constitute an integral part of the employer's business.
The final part of the six part test to determine if a worker is an employee or independent contractor is whether the services constitute an integral part of the employer's business.
The services provided to the employer by the worker must be substantially different from the employer's business for the worker to be considered an independent contractor. The services provided by the worker to the employer should not be directly related to, or integrated into, the employer's business.
The services provided by the worker are directly related to, or integrated into, the employer's business when the success or continuation of the employer's business depends upon the performance of those services.
For example, where an employer that manufactures furniture engages a worker to fabricate upholstery for chairs that the employer sells, the worker's services performed to make or assemble the upholstery material for the chairs is directly related or integrated into the employing unit's product.
On the other hand, where a worker is hired to paint the building in which the employer's manufacturing business is located, the painting work is not integrated into the business activity of the employer.
Case Studies
The department has provided case studies from state and federal court decisions and from LIRC decisions relevant to the factors that make up the employee/ non employee test. View the case studies
DWD Contact Information
201 E. Washington Ave
P.O. Box 7946
Madison, WI 53707
(608) 266-3131
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