Statutory Independent Contractor Test Only Applies to Construction Workers

posted by Michael R. Fortney  |  Jan 27, 2015 08:12 AM in Employment Law:Contracts and Agreements

Whether a worker is an "independent contractor" or an "employee" is an important and costly issue for employers.  In paying employees, employers are required to make certain withholdings, pay payroll taxes, and make unemployment and worker's compensation contributions.  If the worker is an independent contractor, none of these requirements apply.

Courts faced with an independent contractor issue normally rely on the common law test, the central question being "who had the right to control the manner or means of doing the work?"  If the worker has the right to control, the worker is an independent contractor; if the employer retains that control, the worker is likely an employee. The common law test is a balancing test -- the more the employer controls the means or manner of doing the work, the more likely it is that the worker is an employee and not an independent contractor. 

In making the independent contractor decision with regard to a construction worker for purposes of worker's compensation or unemployment compensation contributions, Ohio courts must use the 20 factor test laid out in Ohio Revised Code Chapters 4123 (worker’s compensation) and 4141 (unemployment compensation).  The factors are designed to determine whether the worker or the employer has control of how work is accomplished. The test is based, in part, on a set of factors developed by the IRS. Under the statute, if 10 or more of the 20 factors apply to a worker on a construction project, the worker is an employee and not an independent contractor.

In the case of State ex rel. Ugicom Enters., Inc. v. Buehrer a magistrate in the lower court used the 20 factor test to determine that the worker was an employee and not an independent contractor. The project in the case was laying cable lines for Time Warner Cable.  On appeal, the Tenth District Court of Appeals held that the 20 factor test could not be used since laying cable lines is not a construction project. The statute defines construction as work on a building, structure, highway, or bridge, and the Court determined that laying cable lines was not construction.

Since the work was not performed on a construction project, the Court held that the 20 factor test, which the legislature clearly created strictly for construction contracts, could not be used in place of the common law test. The case was remanded to the lower court for further consideration.

Employers should make certain that their workers are properly classified as employees or independent contractors both for tax withholdings and Ohio unemployment and worker’s compensation withholdings. The 20 factor test is designed to make it easier for construction employers to classify their workers.

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