If you work as an independent contractor in Washington state, it’s essential that you understand Washington state independent contractor laws. In Washington, the classification of a worker can significantly impact which worker’s rights and benefits you are entitled to, including the responsibilities and liabilities your employers are accountable for. Knowing these laws and what they mean for you, in particular, can be instrumental, both in avoiding litigation and effectively navigating Labor & Industries (L&I) claims.
What’s The Difference Between An Employee And An Independent Contractor?
The classification of a worker as either an employee or an independent contractor is a crucial distinction, as it affects how the worker is treated under the law. For instance, employees are entitled to certain rights and benefits, including minimum wage, overtime pay, workers’ compensation, and unemployment insurance. Independent contractors, on the other hand, are usually not entitled to those benefits and responsible for managing their own taxes and insurance.
Let’s take a closer look at the important distinctions below.
Employees are workers who perform services for an employer under the direction and control of the employer. The employer has the right to direct and control the work performed by the employee, including how the work is done as well as when and where it is done.
Key Characteristics of an Employee in Washington State
According to the Washington State Department of Labor & Industries (L&I), the key characteristics that set an employee apart from other types of workers are:
- The worker performs under the direction of their employer regarding the work performed.
- The worker is paid a wage or salary instead of a fee.
- The worker is an integral part of the employer’s business. Specifically, the worker’s work is a necessary part of their employer’s business.
- The worker is not part of an independently established business contracted by their employer.
Rights and Benefits Entitled to Employees
Employees are entitled to certain rights and benefits in Washington state, including:
- Minimum wage: As of January 1, 2022, the minimum wage in Washington state is $14.49 per hour.
- Overtime pay: Employees who work more than 40 hours in one week are entitled to overtime pay, consisting of 1.5 times their regular hourly rate.
- Workers’ compensation: Employers are required to provide workers’ compensation insurance for their employees, which covers medical expenses and lost wages in the event of an injury on the job.
- Unemployment insurance: Employees who lose their jobs for reasons out of their control might be eligible for unemployment benefits.
Independent contractors are workers who perform services for a particular business or organization but who are not employees of those organizations. Independent contractors are typically hired to complete specific tasks or projects, and they are not under the official direction and control of the business or organization hiring them.
Key Characteristics of an Independent Contractor in Washington State
According to L&I, the key features of a Washington independent contractor are:
- The worker is not subjected to the employer’s supervision and oversight regarding the work done.
- The worker is paid a fee for their services rather than a wage or salary.
- Workers have or belong to an independently established business or trade in the same nature as the work performed.
- The worker is free to provide their services to other businesses or organizations.
How Does Washington State L&I Workers’ Compensation Work For Independent Contractors Vs. Employees?
For workers’ compensation cases in Washington state, employees and independent contractors are treated differently by the law. Both workers and employers are well-served to have a good understanding of these important differences, as it ensures compliance with the law and appropriate coverage for workplace injuries.
If an employee is injured while working in Washington state, they are automatically entitled to receive benefits from their employer’s workers’ compensation insurance program. The benefits involved might include medical treatment, wage replacement, and vocational rehabilitation. These entitlements stand, regardless of who was ultimately responsible for the injury.
In most cases, however, an independent contractor must either obtain their own workers’ compensation coverage or be excluded from coverage by their client’s insurance policy. Contractors are not automatically covered by their client’s workers’ compensation insurance.
It’s important to note here that determining whether a worker is an employee or an independent contractor can significantly impact that worker’s ability to receive workers’ compensation benefits. If an employee is misclassified as an independent contractor, they may be entitled to coverage under their client’s workers’ compensation insurance, and things can get messy.
Washington state independent contractor law has various tests and criteria to help employers decide if a worker is an employee or an independent contractor. These include the Department of Labor’s 6-Point Test and the IRS 3-Factor Test, both of which are discussed in more detail below.
Options For Independent Contractors
As an independent contractor in Washington state, you have several options available to ensure that you are appropriately classified and receive the coverage you need in case of workplace injury.
Determine If You Have Been Misclassified As An Independent Contractor
Misclassification can lead to the exclusion of employee benefits such as workers’ compensation coverage, minimum wage and overtime protections, and unemployment insurance. If you think you have been misclassified as a contractor, you may be able to get reclassified as an employee and gain access to the benefits that were previously denied to you.
Determine Your Economic Dependence
One important factor in determining whether a worker is an employee or an independent contractor is economic dependence. Economic dependence means that a worker relies on a particular job or client for their income and livelihood.
Some employers attempt to take advantage of employees by having them sign agreements that state that the worker is considered an independent contractor. However, if the worker is not in business for themself and truly contracted with the employer, then these workers are technically employees. It doesn’t matter if the employer calls the relationship an “independent contractor” if the true nature of the relationship doesn’t meet that legal definition. A proper Washington state independent contractor agreement will use language consistent with the real-world definitions of the employment relationships it describes.
Department Of Labor’s 6-Point Test
The Department of Labor’s 6-Point Test is a set of criteria used to determine whether a worker is an employee or an independent contractor. The criteria include:
- Is the work that the worker provides an integral part of the employer’s business?
- Does a worker’s abilities as a manager affect their chances of profit or loss?
- Is the worker’s investment comparable to the employer’s investment?
- Does the work performed require the worker to have special skills and initiative outside of the main job the employer has hired them for?
- Do the worker and employer have a permanent or indefinite relationship?
- What kind of control does the employer have, and to what degree?
IRS 3-Factor Test
The IRS 3-Factor Test is another option that considers three factors to determine if a worker is an independent contractor or an employee. According to the IRS, if all three of the following factors are met, then the worker can be considered an independent contractor.
- The employer does not have control over the worker’s performance.
- The worker’s work is not within the usual scope of the employer’s business.
- The worker is engaged in an independently established business or trade for other organizations in the same space as their employer.
Consequences Of Misclassifying Workers
If an employer misclassified a worker as an independent contractor instead of an employee, the employer can be held liable for damages. This includes unpaid wages, back taxes, and fines. Because workers who are misclassified can be denied access to workers’ comp benefits, unemployment benefits, and other protections afforded to employees, misclassification is very serious. Employers should know their responsibilities in order to avoid it at all costs.
Compliance With Washington State Contractor Laws
If they hope to avoid legal consequences and generally ensure that workers are correctly classified, then employers must comply with Washington State Contractor Laws.
Legal Consequences Of Non-Compliance
If employers don’t abide by Washington’s contractor laws, they can be penalized with fines and legal proceedings. Furthermore, failure to follow these laws can lead to a business license cancellation and prevent them from bidding on public projects.
The Importance Of Properly Classifying Employees And Independent Contractors
It is essential for employers to comply with Washington state contractor laws and correctly classify all employees and independent contractors. Misclassification of workers can have severe consequences for both the employer and the worker, including legal action and loss of benefits.
- Misclassification of workers can cause denials of workers’ compensation benefits and unemployment benefits for workers who should be entitled to them.
- Independent contractors have several methods to determine if they have been misclassified, including the Economic Dependence Test, the Department of Labor’s 6-Point Test, and the IRS 3-Factor Test.
- Employers must use strict criteria to determine whether a worker is an employee or an independent contractor, and misclassification can result in significant consequences for both parties.
- Employers are held to specific responsibilities under Washington state’s contractor laws, which include obtaining workers’ compensation coverage, filing quarterly reports, and paying all of their premiums on time.
- Non-compliance with Washington state contractor laws can result in fines, penalties, and legal action.
If you need help understanding Washington state contractor laws, contact the knowledgeable and experienced attorneys at Emery Reddy. We can help you navigate all the laws, determine if you or your workers are classified as employees or contractors, and be your partner through an L&I case.
Contact us today to get started.
Frequently Asked Questions About Independent Contract Laws
Do independent contractors need workers comp in Washington state?
Yes, independent contractors in Washington state need workers’ compensation coverage, just like employees.
Who is exempt from Washington L&I?
In most cases, workers and independent contractors alike are required to have coverage from Washington L&I. However, there are a few exemptions from Washington L&I coverage, such as domestic servants, casual laborers, and certain agricultural workers.
Who is an independent contractor under the Labor Code?
Under the Labor Code, an independent contractor is someone who is self-employed and provides services to a company but is not an employee. See the sections above about the Department of Labor’s 6-point and IRS 3-factor tests.
Will L&I help employers properly classify workers?
Yes, L&I offers resources and guidance to help employers properly classify workers and comply with Washington state Contractor Laws.
Do employers have to pay for L&I coverage for their workers?
Yes, employers are responsible for paying for L&I coverage to insure their employees and independent contractors. The cost of coverage will vary depending on several factors, mainly contingent on the nature of the work and the level of risk involved.