Unemployment Insurance - Worker Classification

Prior to January 1, 2011

Under the old law that existed prior to January 1, 2011, there is a ten part test that general private employers or for profit businesses must utilize to determine if their workers are employees or independent contractors. The ten part test is found in Section 108.02(12) of the old law.

To assist in the analysis of each of the conditions, the department has provided the following:

1. An explanation of each of the conditions contained in the ten part test;
2. Case studies relevant to each of the conditions based upon cases decided by the Labor and Industry Review Commission (LIRC), Wisconsin Circuit Courts and Wisconsin Appellate Courts;

Take the Test:

1. Condition One - Holds or Applied For IRS ID Number

   The individual holds or has applied for an identification number with the federal Internal Revenue Service.

   Explanation of Condition One

   An employing unit satisfies this requirement by showing that the individual holds, or has applied for, a Federal Employer Identification Number from the Internal Revenue Service (IRS). A social security number cannot be substituted for a Federal Employer Identification Number. The employer cannot satisfy this condition retroactively.

   Case Studies

   Further Reading and Research Relevant to Condition One

2. Condition Two - Tax Returns

   The individual has filed business or self-employment income tax returns with the federal Internal Revenue Service based on such services in the previous year or, in the case of a new business, in the year in which the services were first performed.

   Explanation of Condition Two

   An employing unit satisfies this condition by showing that the worker has filed a business tax return for the year or years in question. If the employing unit cannot show that the worker has filed a business tax return for the year or years in question, the condition is not satisfied. An uncorroborated statement by the employing unit that a worker has filed a business tax return is not sufficient to satisfy this condition.

   Case Studies

   Further Reading and Research Relevant to Condition Two

3. Condition Three - Equipment

   The individual maintains a separate business with his or her own office, equipment, materials and other facilities.

   Explanation of Condition Three

   An employing unit satisfies this condition by showing that the individual is involved in an enterprise that is separate and apart from the relationship with the employer. A "separate business" can be demonstrated by showing that the individual advertised or held him or herself out as having a separate business and that the individual has performed similar services for other employing units during the time period in question.

   The Labor and Industrial Review Commission has held that the requirement of his or her own "office, equipment, materials, and other facilities" is a nonexclusive list of factors that, if present, tend to show the existence of a separate business.

   The "own equipment and materials" section of Condition Three is satisfied if the tools and equipment the individual has are the main tools and equipment necessary to do the work in question.

   Case Studies

   Further Reading and Research Relevant to Condition Three

4. Condition Four - Contracts

   The individual operates under contracts to perform specific services for specific amounts of money and under which the individual controls the means and methods of performing services.

   Explanation of Condition Four

   There are two sub criteria for this condition.

   The first sub criterion is satisfied by showing that the worker operates under multiple contracts. This means either:

   • multiple contracts with the same employing unit; or
   • contracts with more than one employing unit

   The second sub criterion is whether the worker "controls the means and methods of performing services." The services must be performed free from any meaningful direction or control exercised by the employer. The worker cannot be told how to perform the services. For example, the worker must be free from an employer's requirement to wear a uniform, maintain specified records or being required to have specified signage on the worker's vehicle.

   Case Studies

   Further Reading and Research Relevant to Condition Four

5. Condition Five - Expenses

   The individual incurs the main expenses related to the services he or she provides under contract.

   Explanation of Condition Five

   This condition focuses on the specific services performed for the employer and asks what the main expenses were in connection with performance and then whether those expenses were incurred by the individual.

   The appropriate application of this condition requires:

   1. A determination of what services are performed under contract
   2. A determination of the expenses that are related to the performance of those services
   3. A determination of which of those expenses are incurred by the person whose status is at issue
   4. Finally, based upon the above three determinations, a final determination can be made as to whether the main part of those related expenses was incurred by the person whose status is at issue
   
   

   Case Studies

   Further Reading and Research Relevant to Condition Five

6. Condition Six - Liable for Satisfaction

   The individual is responsible for satisfactory completion of the services that he or she contracts to perform and is liable for a failure to satisfactorily complete the services.

   Explanation of Condition Six

   If the work performed by the individual for the employing unit is not satisfactory to the employing unit, the individual doing the work must redo the work without being paid additional money or may incur a monetary penalty. A monetary penalty could include nonpayment for unsatisfactory work.

   Case Studies

   Further Reading and Research Relevant to Condition Six

7. Condition Seven - Paid Per-Job

   The individual receives compensation for services performed under a contract on a commission or per-job basis and not on any other basis

   Explanation of Condition Seven

   "Commission" includes payment based upon any percentage of a gross amount, or where the gross figure is based upon something other than a dollar amount, such as the number of miles driven. All of the compensation received by the individual must be on a commission, per-job, or competitive bid basis; none can be based on hourly compensation."Per-job" involves a contract to do an entire job for which a price has been set as a result of negotiation with the employer.

   Case Studies

   Further Reading and Research Relevant to Condition Seven

8. Condition Eight - Profit or Loss

   The individual may realize a profit or suffer a loss under contracts to perform such services.

   Explanation of Condition Eight

   This condition examines whether, under a contract for the individual's services, there can be a profit, as well as whether there can be a loss under that same contract. A profit means that income received under the contract exceeds the expenses incurred in performing the contract. A loss means the income received under that contract fails to cover the expenses incurred in performing the contract.

   The individual must have a realistic possibility of both making a profit and of suffering a loss. Speculation as to theoretical profit or loss is not sufficient. Actual out-of-pocket loss must be a realistic possibility. "Lost time" or "lost opportunity" does not constitute an actual out-of-pocket loss. Being paid less money than originally anticipated or agreed does not constitute "suffering a loss" unless it can be established that the individual suffered an actual out-of-pocket loss.

   The possibility of profit or loss must be determined over a substantial period of time rather than based on a single job. The amount of monetary investment made by the individual performing the services is also relevant since if there is little, or no, investment there is equally little likelihood of an actual out of-pocket loss.

   Case Studies

   Further Reading and Research Relevant to Condition Eight

9. Condition Nine - Business Liabilities

   The individual has recurring business liabilities or obligations.

   Explanation of Condition Nine

   This condition is concerned with unavoidable and regularly occurring liabilities or obligations of a business nature and not merely the expenses incurred in connection with the performance of specific services for a specific employing unit. For example, an attorney will incur direct expenses in representation of a particular client. By contrast, the attorney will also have an unavoidable and regularly recurring liabilities or obligations unrelated to the representation of any particular client, such as state bar dues, continuing legal education, business liability or malpractice insurance, rent or made mortgage payments with respect to a business location apart from the individual's residence.

   Case Studies

   Further Reading and Research Relevant to Condition Nine

10. Condition Ten - Success or Failure

    The success or failure of the individual's business depends on the relationship of business receipts to expenditures.

    Explanation of Condition Ten

    This condition involves, at least in part, the notion of economic independence. That is, was the worker performing similar services for other employing units besides the employing unit at issue during the time period in question?

    Some LIRC decisions have held that where the individual performed for only one employing unit the condition was not satisfied because the relationship of business receipts to expenditures was less important than the individual maintaining a relationship with the particular employing unit.

    Other decisions have held that this condition is concerned with a broad overview of the enterprise in question to determine whether the individual faces any realistic prospect of a significant period of time during which he or she would necessarily have expenditures but not receipts.

    Similarly, other decisions have held that this condition is concerned with whether the endeavor involves a significant investment which is at risk thereby creating the potential for real success if the investment proves profitable or real failure if the investment is lost.

    The condition is not satisfied if the individual is performing the services more as a hobby than as a business, on the rationale that the individual is not interested, at least primarily, in receipts versus expenditures.

    Case Studies

    Further Reading and Research Relevant to Condition Ten