Total Team Solutions Blog

Independent Contractors - Update for CT Employers

By: John Morlock

INDEPENDENT CONTRACTORS – AN UPDATE FOR CONNECTICUT EMPLOYERS

 

Since the implementation of employer payroll taxes, the classification of workers as employees versus independent contractors has been a contentious issue.  On the one hand, employers want to avoid paying the payroll taxes; on the other hand the states and federal government want to increase their tax revenues.  Over the years the guidance issued by the IRS and states have changed and evolved in an attempt to simplify the classification process, but the gray areas continue to exist and employers are at the mercy of the auditor’s interpretation of the various rules.

 

Now a recent case that went to the Connecticut Supreme Court has provided some help for employers and their human resources departments in the state.  The Connecticut Department of Labor has a three pronged ABC Test that is uses to classify workers in the state.  If all three tests are satisfied, then the worker is an independent contractor.

A.    The worker is free from “direction and control” of the employer;

B.    The services the worker provides are outside the employer’s usual course and/or place of business; and,

C.    The worker is customarily engaged in an independently established business of the same nature as the services performed.

 

The case in question involved Southwest Appraisal Group, which provides automotive damage appraisals and regularly contracts with independent appraisers for a flat fee.  The auditor in the case found that while the workers met the first two tests, because the appraisers did not perform work for any other companies other than Southwest Appraisal Group during the relevant time period they failed the third test.  Upon appeal, a trial court agreed with the auditor so the company took the case to the Connecticut Supreme Court with the sole issue to be decided was whether the ABC Test required an independent contractor to perform services for multiple companies.

 

The Court ruled in favor of the company, stating that working for multiple third parties is not required, but is only one factor to consider in the totality of the circumstances.  To clarify, the Court provided 10 factors that should be evaluated when determining the Prong C test.

1.      The existence of state licensure or specialized skills

2.      Whether the worker holds himself or herself our as an independent business through the existence of business cards, printed invoices or advertising

3.      The existence of a place of business separate from that of the putative employer

4.      The worker’s capital investment in the independent business

5.      Whether the worker manages risk by handling his or her own liability insurance

6.      Whether the services are performed under the individual’s own name as opposed to the name of the putative employer

7.      Whether the worker employs or subcontracts others

8.      Whether the worker has a saleable business or going concern with the existence of established clientele

9.      Whether the individual performs services for more than one entity

10.  Whether the performance of services affects the goodwill of the individual rather than the company for which he or she is performing the services.

 

This was a big win for Connecticut employers as Prong C is often the one that the DOL relies on to classify workers as employees during their audits and investigations.  Now companies have a stronger position to win cases like this even when they are the sole employer of the contractor.

 

For more information on this topic as well as other human resources issues, contact John Morlock (jmorlock@ttspro.com) to see how Total Team Solutions could help you save time and money.

 

ABOUT TOTAL TEAM SOLUTIONS:  Total Team Solutions is a full service Human Resources Outsourcing company helping small business manage their payroll, employee benefits and human resources needs to reduce expenses and save them time so they can focus on running and growing their businesses.  Based in Trumbull, CT, Total Team Solutions serves clients in Connecticut, Massachusetts, New York and New Jersey.

 

 

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