Employee vs Independent Contractor: Considerations for Determining Employment Status

Jun 24, 2020 | Employment Law, Business

In Idaho, a worker’s status is an important factual determination that requires a detailed analysis. To determine whether an individual is an employee or independent contractor involves the careful consideration of several different tests throughout the Idaho Code and case law to arrive at an appropriate answer for an employer. 

The challenge rests in the fact that employment status is analyzed differently under the Idaho Workers’ Compensation Law, the Idaho Employment Security Law, and common law. 

Idaho Workers’ Compensation Law provides the most specific statutory definitions. “Employee” means any person who has entered into the employment of, or who works under a contract of service or apprenticeship with, an employer. “Independent contractor” means any person who renders service for a specified recompense for a specific result, under the right to control or actual control of his principal as to the result of his work only and not as to the means by which such result is accomplished. 

Separately, the Idaho Employment Security Law does not provide an express definition. Inferred by statute, services performed by an individual for remuneration shall be employees. Independent contractors have not covered employees, and under this statute have been and will continue to be free from control or direction in the performance of work, both under contract of service and in fact; and are engaged in an independently established trade, occupation, profession, or business.  

Traditionally under common law, states provide a specific factor test to determine employment status. Idaho courts generally look at four factors when analyzing whether a right to control exists. The “right to control test” includes (1) direct evidence of such right; (2) the method of payment for the work completed; (3) the party responsible for furnishing the major items of equipment; and (4) the right to terminate the employment relationship at will and without liability. 

The presumption weighs in favor of an employee-employer relationship, rather than a relationship as an independent contractor. When applying the right to control test, the factfinder must balance each of the elements present to determine their relative weight and importance, since none of the elements in itself is controlling.

The Ninth Circuit utilizes the Darden test to determine whether an individual is an independent contractor or an employee for Title VII purposes. The Darden test evaluates “the hiring party’s right to control the manner and means by which the product is accomplished,” and utilizes the following non-exclusive factors:

the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.

The IRS has a similar analysis for determining whether a worker is an employee or an independent contractor. According to the IRS, an individual is an independent contractor if the payer has the right to control or direct only the result of the work, not what will be done and how it will be done. When making this determination, the IRS considers three factors: 1) behavioral control; 2) financial control; and 3) the relationship of the parties. 

When analyzing behavioral control, the following are examples of instructions about how to do work: when and where to do the work; what tools or equipment to use; what workers to hire or to assist with the work; where to purchase supplies and services; what work must be performed by a specified individual; or what order or sequence to follow. The amount of instruction needed varies among different jobs. A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. The key consideration is whether the business has retained the right to control the details of a worker’s performance or whether they have relinquished that right.

Misclassification exposes employers to risk under all tax and wage laws. It is important to ensure the employment status is classified appropriately given the unique facts or circumstances an employer may be faced with.

This blog post is designed to provide general information on pertinent legal topics. The statements made are provided for educational purposes only. This blog does not provide legal advice. This blog does not create an attorney-client relationship between you and Smith + Malek, PLLC. If you want to create an attorney-client relationship and have specific questions regarding the application of the law to your own circumstances, you should contact our office.