Labor Standards - Worker Classification

Six Part Test

Part Two - Profit or Loss

The worker's opportunity for profit or loss based upon his or her managerial skills.

Explanation of Part Two

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.

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