If you engage workers as independent contractors, you may be faced with a Department of Labor (DOL) Wage and Liability form one day.
Engaging workers as independent contractors can be risky. In recent years, there has been increased scrutiny over independent contractor classification at both the federal and state levels. It is not uncommon, for example, for Georgia companies to be challenged by the Georgia Department of Labor (“GADOL”) about their use of independent contractors. A critical part of the GADOL’s audit is the use of the Wage & Liability Inquiry form, which many companies are not familiar with.
This FAQ helps explain the purpose of the Wage & Liability Inquiry form and why it is important that a company receiving the form complete it properly. As discussed below, if your company receives a Wage & Liability Inquiry form, it is prudent to get some sound legal advice before submitting the completed report form.
Q: Why did our company receive a Wage and Liability Inquiry form?
Your company received a Wage & Liability Inquiry form because the GADOL is investigating whether your company properly classified an independent contractor or group of independent contractors.
The Wage & Liability Inquiry form is designed to provide relevant information to the GADOL to help its initial determination as to whether a worker is properly classified as an independent contractor (as opposed to an employee) for unemployment insurance (“UI”) tax purposes. The claimant also is required to complete a Wage & Liability Inquiry form.
Q: Why is the GADOL conducting an investigation about independent contractors?
Typically, an investigation arises because an independent contractor files for unemployment benefits. The GADOL must then determine the claimant’s status as either an employee or an independent contractor. Employers are not required to pay UI tax for independent contractors but must pay UI tax for employees.
Q: Why Does Classification matter?
Money, money, money! The government wants the taxes that it is rightfully owed. Employers that hire independent contractors rather than hiring employees are not subject to UI tax. Likewise, independent contractors are not eligible for unemployment benefits when the relationship ends. It’s important that you do not misclassify an employee as an independent contractor. If you do misclassify an employee, you could be subject to penalties or fines.
Q: What is the Wage and Liability Form really trying to prove?
The wage form seeks information to show whether the company can prove its case that the worker was engaged as an independent contractor.
The Georgia Code Section 34-8-35(f) provides that services performed by an individual for wages shall be deemed to be employment subject to unemployment insurance tax unless the company shows that:
(1) (A) Such individual has been and will continue to be free from control or direction over the performance of such services, both under the individual’s contract or service and in fact; and
(B) Such individual is customarily engaged in an Independently established trade, or occupation, profession, or business; or
(2) Such individual and the services performed for wages are the subject of a SS-8 determination by the lnternal Revenue Service, which decided against employee status.
The questions contained in the Wage & Liability Inquiry form seek information about these two requirements: (1) the degree of control the company has over the worker; and (2) the extent the worker operates as an independent business.
Q: Why is the Wage & Liability Inquiry Form so long?
Determining proper classification is made on a case-by-case analysis and is based on a multitude of factors. For example, factors to be considered in determining the degree of control include, but are not limited to: the existence of a written contractor agreement; the amount of daily supervision, the form of compensation; the provision of health insurance and workers compensation benefits, expense reimbursement, and training; reporting requirements; scheduling and the ability to accept or reject assignments; and the equipment used, to name a few. The Wage & Liability Inquiry form seeks information about all of these factors.
Q: If the claimant signed an independent contractor agreement isn’t that enough to prove my case?
No. As stated above, whether a worker is properly classified as an independent contractor is based on several factors, and not one single factor is determinative. The existence of an independent contractor agreement can be very helpful, but an agreement standing alone is not sufficient to prove independent contractor status. Also keep in mind that the terms of the independent contractor agreement are very important. If not properly drafted, the independent contractor agreement could actually work against you.
Q: Should I seek legal help in answering the Wage & Liability Inquiry form?
Yes. How you answer the questions in the Wage & Liability Inquiry Form can have significant financial and legal ramifications. In addition to answering specific questions, the form allows you to provide any additional facts, elaboration of attached documentation or commentary that you would like to have considered in making the determination. An experienced attorney can help ensure that you communicate the relationship between the company and the worker accurately and thoroughly.
As always, please let me know if I can help.