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What is worker/employee
Misclassification occurs when an employer incorrectly
defines a worker as an “independent contractor” rather than an employee.
Although misclassification can happen inadvertently, it is more often used
to circumvent the law.
Are there any guidelines to
help employers classify workers correctly?
Yes, although determination of a
worker’s status is often complex. Connecticut agencies use different rules
and tests to determine employment status as different agencies are
responsible for separate aspects of law.
For example, the Connecticut Department of Revenue Services refers to
“common law rules.” The Connecticut Department of Labor’s Unemployment
Compensation Division uses the “ABC” test and, for determining a covered
claim, the Workers’ Compensation Commission considers other factors.
What is the “ABC Test”?
The ABC Test applies three factors (A,
B, and C) for determining a worker’s employment status. To be considered an
“independent contractor,” an individual must meet all three of the following
A. The individual must be free from direction and control (work
independently) in connection with the performance of the service, both under
his or her contract of hire and in fact; B. The individual's service
must be performed either outside the usual course of business of the
employer or outside all the employer's places of business; and C. The
individual must be customarily engaged in an independently established
trade, occupation, profession or business of the same nature as the service
It is important to note that factor A, which incorporates many of the common
law factors (see “Common Law Rules” noted in question 4) will not be
satisfied if the person for whom the service is performed retains the right
to exercise direction and control over the service, even when the right is
not used. Also, bear in mind that an individual who forms a business in
response to an offer of work as an independent contractor will not meet the
“customarily engaged” or the “independently established” criteria of test C.
What are “Common Law
Under the common law rules, an
employer-employee relationship exists when the business for which the
services are performed has the right to direct and control the worker who
performs the services. This control refers not only to the result to be
accomplished by the work, but also the means and details by which that
result is accomplished. Three major categories should be considered when
determining the correct classification of a worker. These are behavioral
control, financial control, and the relationship of the parties.
Behavioral control refers to the right to direct and control the details and
means by which the worker performs the required services. Factors considered
- When to do the work.
- Where to do the work.
- What tools or equipment to use.
- What workers to hire to assist with the work.
- Where to purchase supplies and services.
- What work must be performed by a specified individual (including
ability to hire assistants).
- What routines or patterns must be used.
- What order or sequence to follow.
Economic aspects of the relationship between the parties are analyzed in
determining worker classification. Factors that demonstrate financial
Relationship of the Parties:
- Does the worker have a significant investment in facilities and
- Are the worker’s business expenses reimbursed?
- Does the worker make the services available to the relevant market?
- How is the worker paid?
- Does the worker have an opportunity for profit or loss?
The relationship of the parties is important because it reflects the
parties’ intent concerning control. These factors include:
- Intent of parties. Is there a written contract?
- Tax Forms. Does the worker receive a Form W-2 or 1099-MISC?
- Incorporation. Is the worker providing services as a recognized
- Employee benefits. Does the worker receive employee benefits
traditionally associated with employee status?
- Discharge and/or termination. What are the circumstances under which
a worker can terminate their relationship?
- Long-term relationship.
- Regular business activity. Are the services provided by the worker a
key aspect of the regular business of the company?
Relevant evidence in all three categories must be weighed to determine
the worker’s status.
5. Why should
misclassification matter to workers, employers, taxpayers, and
Workers misclassified as independent contractors can experience a loss of
certain employment protections and benefits. These may include:
- Ineligibility for unemployment compensation.
- No workers’ compensation coverage if hurt on the job.
- No overtime pay, minimum wage earnings or below, and often a job
without health benefits.
- Incorrect payment of various state and federal employment taxes such
as social security, federal and state unemployment and income tax that
could result in a worker’s liability to pay applicable taxes with
interest and penalties if not reported properly.
Employers who illegally misclassify workers:
For taxpayers and government:
- Create an unfair business climate where law-abiding employers cannot
compete against employers who intentionally undercut them by not paying
all taxes and benefits for workers.
- Do not pay lawful, employment-related taxes on workers– resulting in
higher taxes for other employers who follow the law.
- Could be liable for back assessments and substantial penalties.
- Taxpayers pay more than their share when legally irresponsible
employers avoid paying them.
- Government loses much needed tax revenue.
- Government paid entitlement programs for benefits that could be
provided by an employer – provided by taxpayers for benefits even though
no cost was incurred by businesses.
Published by the Connecticut Department of Labor,
Project Management Office
September 28, 2010