Worker's Compensation - Worker Classification

Nine Requirements Test - Independent Contractor

To be considered an independent contractor and not an employee, an individual must meet and maintain all nine of the requirements listed below. To assist the employer in the analysis, the department has provided the following:

  1. An explanation of each of the requirements contained in the nine part test
  2. Case studies relevant to each of the requirements based upon cases decided by the Labor and Industry Review Commission (LIRC), Wisconsin Circuit Courts and Wisconsin Appellate Courts
  1. Requirement One - Maintain a Separate Business

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

    Explanation of Requirement One

    An employing unit satisfies this condition by showing that the applicant maintains some space somewhere that resembles an office or "facility" or chooses the place to perform the services. The space or facility need not be a traditional office. The individual also uses either materials or equipment that are his or her own. The individual is not choosing the location when the employing unit requires the individual to travel to a designated route, to canvass a territory within a certain amount of time or to work at specific places.

    Case Studies

    Case studies relevant to Requirement One based upon cases decided by the Labor and Industry Review Commission (LIRC), Wisconsin Circuit Courts and Wisconsin Appellate Courts

  2. Requirement Two - Obtain a FEIN or Have Filed Business or Self-Employment Tax Returns

    The individual obtains a Federal Employer Identification Number (FEIN) from the Federal Internal Revenue Service (IRS) or has filed business or self-employment income tax returns with the IRS based on the work or service in the previous year.

    Explanation of Requirement Two

    An employing unit satisfies this requirement by showing that the applicant obtained a Federal Employer Identification number from the Federal Internal Revenue Service (IRS) or has filed business or self-employment income tax returns with the IRS based on the work or service in the previous year. A social security number cannot be substituted for a FEIN and does not meet the legal burden of Section 102.07(8), Wis. Stats.

    Case Studies

    Case studies relevant to Requirement Two based upon cases decided by the Labor and Industry Review Commission (LIRC), Wisconsin Circuit Courts and Wisconsin Appellate Courts

  3. Requirement Three - Operate Under Specific Contracts

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

    Explanation of Requirement Three

    An employing unit satisfies this requirement by showing that the applicant operates under contracts to perform specific services or work both for specific amounts of money and under which the independent contractor controls the means of performing the services or work.

    The contracts may be either written or verbal.

    An independent contractor controls how he or she performs the work. An employer does not generally provide an independent contractor with instructions on how to perform the work.

    An independent contractor is free to set his or her own hours. An independent contractor is free to determine in what order or sequence to perform his or her duties. An employee is required by the employer to perform his or her services at times or in a particular order or sequence established by the employer.

    Case Studies

    Case studies relevant to Requirement Three based upon cases decided by the Labor and Industry Review Commission (LIRC), Wisconsin Circuit Courts and Wisconsin Appellate Courts

  4. Requirement Four - Responsible For Main Expenses

    The individual incurs the main expenses related to the service or work that he or she performs under contract

    Explanation of Requirement Four

    An employing unit satisfies this requirement by:

    1. Determining which services are performed by the individual (independent contractor) under contract;
    2. Determining the expenses that are related to the performance of those services;
    3. Determining which of those expenses are incurred by the person (independent contractor) whose status is at issue;

    Based upon the above three determinations, the employing unit can then make a final determination as to whether the main part of those related expenses was incurred by the person whose status is at issue.

    Case Studies

    Case studies relevant to Requirement Four based upon cases decided by the Labor and Industry Review Commission (LIRC), Wisconsin Circuit Courts and Wisconsin Appellate Courts

  5. Requirement Five - Satisfactory Completion of Work or Services

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

    Explanation of Requirement Five

    An employing unit satisfies this requirement by showing that the individual was:

    1. Responsible for the satisfactory completion of the work or services he or she contracted to perform.
    2. Liable for failure to complete the work or services. Being liable for failure to complete the work or services could include a monetary penalty, nonpayment for unsatisfactory work, or being required to redo the unsatisfactory work without being paid additional money.

    Case Studies

    Case studies relevant to Requirement Five based upon cases decided by the Labor and Industry Review Commission (LIRC), Wisconsin Circuit Courts and Wisconsin Appellate Courts

  6. Requirement Six - Receive Compensation Under a Contract on a Commission, Per Job, or Competitive Bid Basis

    The individual receives compensation for work or service performed under a contract on a commission or per job or competitive bid basis and not on any other basis.

    Explanation of Requirement Six

    An employing unit satisfies this requirement by showing that the individual:

    1. Is paid for work or service performed under a contract. The contract can be oral or written.
    2. Is paid on a commission basis, or;
    3. Is paid on a per job basis, or;
    4. Is paid on a competitive bid basis;
    5. Is not paid on any other basis

    Case Studies

    Case studies relevant to Requirement Six based upon cases decided by the Labor and Industry Review Commission (LIRC), Wisconsin Circuit Courts and Wisconsin Appellate Courts

  7. Requirement Seven - Realize a Profit or Suffer a Loss

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

    Explanation of Requirement Seven

    This requirement 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 potential for profit and the potential for loss need to be evaluated by looking at the specific contracts the individual enters into. This test does not look at the question of whether, in the long run, income received through the individual's business will exceed expenses, or vice-versa. Rather, it looks at the question of whether under particular contracts the individual enters into, there can be a profit or there can be a loss.

    Case Studies

    Case studies relevant to Requirement Seven based upon cases decided by the Labor and Industry Review Commission (LIRC), Wisconsin Circuit Courts and Wisconsin Appellate Courts

  8. Requirement Eight - Recurring Business Liabilities or Obligations

    The individual has continuing or recurring business liabilities or obligations

    Explanation of Requirement Eight

    An employing unit satisfies this requirement by showing that the worker has proof of a cost of doing business which the worker would incur even during a period the worker was not performing work for the employer. Such costs may include, but are not limited to, an office lease, professional fees or liability insurance.

    Case Studies

    Case studies relevant to Requirement Eight based upon cases decided by the Labor and Industry Review Commission (LIRC), Wisconsin Circuit Courts and Wisconsin Appellate Courts

  9. Requirement Nine - Relationship of Business Receipts to Expenditures

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

    Explanation of Requirement Nine

    An employing unit satisfies this requirement by showing that the worker is in a position to succeed or fail if business expense exceeds income.

    The individual must face a realistic prospect of a significant time period during which he or she would necessarily have expenditures but not receipts.

    If the individual is guaranteed to receive the amount expected from the employing unit without any possibility of loss, the requirement is not satisfied.

    Case Studies

    Case studies relevant to Requirement Nine based upon cases decided by the Labor and Industry Review Commission (LIRC), Wisconsin Circuit Courts and Wisconsin Appellate Courts