When unemployment benefits are considered by the state, many factors go into determining whether an unemployed individual was an "independent contractor" or an "employee," during employment.
Under the law an employer is only required to pay unemployment benefits to former employees and not independent contractors.Those factors become increasingly important as an increasing number of companies hire workers, claiming they are independent contractors, so they don't have to pay benefits. There have also been questions about temporary employees and who is responsible for paying unemployment fees.
Problems occur when a worker's job ends and he or she applies to the Utah Department of Employment Security for unemployment money.
The department examines the former employee's relationship to the employer to determine if the worker is an independent contractor or an employee. The main purpose is to force the employer to pay a fair share of unemployment benefits, according to department officials.
Because of the growing concern over who is and who isn't an independent contractor, the State Industrial Commission has proposed SB164, sponsored by Sen. Glade Nielsen, R-Roy, which passed the Senate Business, Labor and Economic Development Committee and is being considered by the Senate.
Commission Chairman Stephen M. Hadley said the main purpose of SB164 is to provide a definition of independent contractor that is similar to the Internal Revenue Service's definition, thus making it easier for all to understand. The department recently conducted a seminar to acquaint employers with the law governing independent contractors, but some of the information could be negated if the bill passes.
The Utah Employment Security Act provides that services performed by an individual for wages or under any contract of hire, written or oral, express or implied, are subject to the act until it is shown to the commission's satisfaction that:
A. The individual has been and will continue to be free from control or direction over the performance of those services.
B. The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the contract of service.
In looking at the "A" test, department officials examine the employer's instructions regarding the work, if training is provided, if service is rendered personally, if there are set hours of work, where the work is located, if reports are required, how pay is made, if expenses are paid, what tools and equipment are required and who makes a profit or takes a loss.
To meet the "B" part of the law, department employees determine if the worker has a business that is separate from the employer, if work is performed for several companies, if there is a written agreement, who purchases business and contractor's licenses and if the person files self-employment or other business tax forms.
Several factors can be used to make a determination.
In SB164, the Senate committee said common law will prevail in defining an independent contractor. The proposed bill lists 20 factors that could be considered by department officials in making a ruling. Among the factors are:
- Whether the individual works his own schedule or is required to comply with another person's instructions about when and where the work is performed.
- Whether the individual uses his own methods and requires no specific training from the purchaser.
- Whether the individual's services are important to the success orcontinuation of a business, or are merged into the business and continuation of the business depends upon those services.
- Whether the person establishes his own work schedule.
- Whether the person can perform services for several companies.