From JDSupra, Katharine Fenn and Tareen Zafrullah provide an excellent summary of recent state and local employment changes including those relating to independent contractors. Katharine and Tareen write:
The year 2021 continues the trend of increasing regulation of the workplace by state and local governments. Although it is not possible to discuss all state and local laws, this update provides an overview of recent and upcoming legislative developments to help you and your organization stay in compliance. (Please note that developments specifically related to minimum wage rates and COVID-19 are not included.)
IRS 20-Factor Test for Independent Contractors: With an implementation date of July 1, 2021, changes to Alabama’s Industrial Relations and Labor Code will require an employer or state agency responsible for determining the employment status of an individual to use the Internal Revenue Service’s 20-Factor Test regarding (1) eligibility for employee benefits and protections, and (2) determining tax liability for employees and employers. Additionally, the employer or state agency must also apply the federal safe harbor provisions, protecting employers that reclassify independent contractors as employees during an audit.
Independent Contractors New Hire Reporting: Effective July 1, 2021, the term “Employee” includes a self-employed or contracted employee for whom the employer is required to report compensation to the federal Internal Revenue Service, and the employer must submit the required information to the state directory of new hires.
Independent Contractor Certifications: Effective October 1, 2021, these amendments are applying to unemployment insurance and workers’ compensation. An individual may not be determined to be an employee based solely on not having an independent contractor exemption certificate. A person who falsely claimed, either in writing or through credible evidence, to have an independent contractor certification may not be considered to be an employee solely based on not actually having an independent contractor exemption certificate. The burden of proof that an independent contractor is certified rests with the independent contractor and not the hiring entity.
Independent Contractor Classification: Effective June 9, 2021, the West Virginia Employment Law Worker Classification Act allows a worker to be classified as an independent contractor rather than employee if the worker: (1) signs a contract that includes certain acknowledgements; (2) either has filed (or is contractually required to file) an income tax return for the fees earned from the work, or provides their services through a business entity; (3) actually and directly controls the manner and means by which the work is to be accomplished, with certain exceptions; and (4) satisfies at least three out of nine criteria that are set forth in the Act.
Workers also may be classified as independent contractors if they meet the federal criteria for direct sellers.
The classification of all workers who do not satisfy the above test will be determined by the IRS 20-Factor Test.