Understanding Washington State Independent Contractor Laws In L&I (2024)

Understanding Washington State Independent Contractor Laws In L&I (1)

If you work as an independent contractor in Washington state, it’s essential that you understand Washington state independent contractor laws. In Washington, the classification of a worker can significantly impact which worker’s rights and benefits you are entitled to, including the responsibilities and liabilities your employers are accountable for. Knowing these laws and what they mean for you, in particular, can be instrumental, both in avoiding litigation and effectively navigating Labor & Industries (L&I) claims.

What’s The Difference Between An Employee And An Independent Contractor?

The classification of a worker as either an employee or an independent contractor is a crucial distinction, as it affects how the worker is treated under the law. For instance, employees are entitled to certain rights and benefits, including minimum wage, overtime pay, workers’ compensation, and unemployment insurance. Independent contractors, on the other hand, are usually not entitled to those benefits and responsible for managing their own taxes and insurance.

Let’s take a closer look at the important distinctions below.

Employees

Employees are workers who perform services for an employer under the direction and control of the employer. The employer has the right to direct and control the work performed by the employee, including how the work is done as well as when and where it is done.

Key Characteristics of an Employee in Washington State

According to the Washington State Department of Labor & Industries (L&I), the key characteristics that set an employee apart from other types of workers are:

  • The worker performs under the direction of their employer regarding the work performed.
  • The worker is paid a wage or salary instead of a fee.
  • The worker is an integral part of the employer’s business. Specifically, the worker’s work is a necessary part of their employer’s business.
  • The worker is not part of an independently established business contracted by their employer.

Rights and Benefits Entitled to Employees

Employees are entitled to certain rights and benefits in Washington state, including:

  • Minimum wage: As of January 1, 2022, the minimum wage in Washington state is $14.49 per hour.
  • Overtime pay: Employees who work more than 40 hours in one week are entitled to overtime pay, consisting of 1.5 times their regular hourly rate.
  • Workers’ compensation: Employers are required to provide workers’ compensation insurance for their employees, which covers medical expenses and lost wages in the event of an injury on the job.
  • Unemployment insurance: Employees who lose their jobs for reasons out of their control might be eligible for unemployment benefits.

Independent Contractors

Independent contractors are workers who perform services for a particular business or organization but who are not employees of those organizations. Independent contractors are typically hired to complete specific tasks or projects, and they are not under the official direction and control of the business or organization hiring them.

Key Characteristics of an Independent Contractor in Washington State

According to L&I, the key features of a Washington independent contractor are:

  • The worker is not subjected to the employer’s supervision and oversight regarding the work done.
  • The worker is paid a fee for their services rather than a wage or salary.
  • Workers have or belong to an independently established business or trade in the same nature as the work performed.
  • The worker is free to provide their services to other businesses or organizations.

How Does Washington State L&I Workers’ Compensation Work For Independent Contractors Vs. Employees?

For workers’ compensation cases in Washington state, employees and independent contractors are treated differently by the law. Both workers and employers are well-served to have a good understanding of these important differences, as it ensures compliance with the law and appropriate coverage for workplace injuries.

If an employee is injured while working in Washington state, they are automatically entitled to receive benefits from their employer’s workers’ compensation insurance program. The benefits involved might include medical treatment, wage replacement, and vocational rehabilitation. These entitlements stand, regardless of who was ultimately responsible for the injury.

In most cases, however, an independent contractor must either obtain their own workers’ compensation coverage or be excluded from coverage by their client’s insurance policy. Contractors are not automatically covered by their client’s workers’ compensation insurance.

It’s important to note here that determining whether a worker is an employee or an independent contractor can significantly impact that worker’s ability to receive workers’ compensation benefits. If an employee is misclassified as an independent contractor, they may be entitled to coverage under their client’s workers’ compensation insurance, and things can get messy.

Washington state independent contractor law has various tests and criteria to help employers decide if a worker is an employee or an independent contractor. These include the Department of Labor’s 6-Point Test and the IRS 3-Factor Test, both of which are discussed in more detail below.

Options For Independent Contractors

As an independent contractor in Washington state, you have several options available to ensure that you are appropriately classified and receive the coverage you need in case of workplace injury.

Determine If You Have Been Misclassified As An Independent Contractor

Misclassification can lead to the exclusion of employee benefits such as workers’ compensation coverage, minimum wage and overtime protections, and unemployment insurance. If you think you have been misclassified as a contractor, you may be able to get reclassified as an employee and gain access to the benefits that were previously denied to you.

Determine Your Economic Dependence

One important factor in determining whether a worker is an employee or an independent contractor is economic dependence. Economic dependence means that a worker relies on a particular job or client for their income and livelihood.

Some employers attempt to take advantage of employees by having them sign agreements that state that the worker is considered an independent contractor. However, if the worker is not in business for themself and truly contracted with the employer, then these workers are technically employees. It doesn’t matter if the employer calls the relationship an “independent contractor” if the true nature of the relationship doesn’t meet that legal definition. A proper Washington state independent contractor agreement will use language consistent with the real-world definitions of the employment relationships it describes.

Department Of Labor’s 6-Point Test

The Department of Labor’s 6-Point Test is a set of criteria used to determine whether a worker is an employee or an independent contractor. The criteria include:

  • Is the work that the worker provides an integral part of the employer’s business?
  • Does a worker’s abilities as a manager affect their chances of profit or loss?
  • Is the worker’s investment comparable to the employer’s investment?
  • Does the work performed require the worker to have special skills and initiative outside of the main job the employer has hired them for?
  • Do the worker and employer have a permanent or indefinite relationship?
  • What kind of control does the employer have, and to what degree?

IRS 3-Factor Test

The IRS 3-Factor Test is another option that considers three factors to determine if a worker is an independent contractor or an employee. According to the IRS, if all three of the following factors are met, then the worker can be considered an independent contractor.

  • The employer does not have control over the worker’s performance.
  • The worker’s work is not within the usual scope of the employer’s business.
  • The worker is engaged in an independently established business or trade for other organizations in the same space as their employer.

Consequences Of Misclassifying Workers

If an employer misclassified a worker as an independent contractor instead of an employee, the employer can be held liable for damages. This includes unpaid wages, back taxes, and fines. Because workers who are misclassified can be denied access to workers’ comp benefits, unemployment benefits, and other protections afforded to employees, misclassification is very serious. Employers should know their responsibilities in order to avoid it at all costs.

Compliance With Washington State Contractor Laws

If they hope to avoid legal consequences and generally ensure that workers are correctly classified, then employers must comply with Washington State Contractor Laws.

Legal Consequences Of Non-Compliance

If employers don’t abide by Washington’s contractor laws, they can be penalized with fines and legal proceedings. Furthermore, failure to follow these laws can lead to a business license cancellation and prevent them from bidding on public projects.

The Importance Of Properly Classifying Employees And Independent Contractors

It is essential for employers to comply with Washington state contractor laws and correctly classify all employees and independent contractors. Misclassification of workers can have severe consequences for both the employer and the worker, including legal action and loss of benefits.

  • Misclassification of workers can cause denials of workers’ compensation benefits and unemployment benefits for workers who should be entitled to them.
  • Independent contractors have several methods to determine if they have been misclassified, including the Economic Dependence Test, the Department of Labor’s 6-Point Test, and the IRS 3-Factor Test.
  • Employers must use strict criteria to determine whether a worker is an employee or an independent contractor, and misclassification can result in significant consequences for both parties.
  • Employers are held to specific responsibilities under Washington state’s contractor laws, which include obtaining workers’ compensation coverage, filing quarterly reports, and paying all of their premiums on time.
  • Non-compliance with Washington state contractor laws can result in fines, penalties, and legal action.

If you need help understanding Washington state contractor laws, contact the knowledgeable and experienced attorneys at Emery Reddy. We can help you navigate all the laws, determine if you or your workers are classified as employees or contractors, and be your partner through an L&I case.

Contact us today to get started.

Frequently Asked Questions About Independent Contract Laws

Do independent contractors need workers comp in Washington state?

Yes, independent contractors in Washington state need workers’ compensation coverage, just like employees.

Who is exempt from Washington L&I?

In most cases, workers and independent contractors alike are required to have coverage from Washington L&I. However, there are a few exemptions from Washington L&I coverage, such as domestic servants, casual laborers, and certain agricultural workers.

Who is an independent contractor under the Labor Code?

Under the Labor Code, an independent contractor is someone who is self-employed and provides services to a company but is not an employee. See the sections above about the Department of Labor’s 6-point and IRS 3-factor tests.

Will L&I help employers properly classify workers?

Yes, L&I offers resources and guidance to help employers properly classify workers and comply with Washington state Contractor Laws.

Do employers have to pay for L&I coverage for their workers?

Yes, employers are responsible for paying for L&I coverage to insure their employees and independent contractors. The cost of coverage will vary depending on several factors, mainly contingent on the nature of the work and the level of risk involved.

Understanding Washington State Independent Contractor Laws In L&I (2024)

FAQs

Do independent contractors need workers' comp in Washington state? ›

Independent Contractors. All workers in Washington are entitled to workers' compensation unless they fit strict exemption definitions.

What is the difference between an employee and an independent contractor in Washington state? ›

An employee works under the control of the employer. An independent contractor must personally perform the task. An employee can delegate tasks. An independent contractor receives no training.

Do I need a business license as an independent contractor in Washington? ›

Registering your business

Independent contractors must register with the Department of Revenue unless they: Make less than $12,000 a year before expenses; Do not make retail sales; Are not required to pay or collect any taxes administered by the Department of Revenue.

What taxes do independent contractors pay in Washington state? ›

The Washington state self employment tax covers both Social Security and Medicare payments when you're a solo worker. The total is 15.3%, with 12.4% covering the part of Social Security and 2.9% covering your Medicare.

Who is exempt from workers' comp in WA state? ›

While state workers' compensation insurance is recommended for all businesses, there are a few exceptions to the state law: Independent contractors, sole proprietors or limited liability company (LLCs) One domestic worker in a private home with less than 40 hours per week of labor.

Does a sole proprietor need workers' comp in Washington state? ›

I own a business. Am I required to have workers' comp coverage on myself? No. Owners of businesses (sole proprietors), exempt corporate officers, and partners aren't required to have workers' comp coverage in this state.

Is there a difference between self-employed and independent contractor? ›

Becoming an independent contractor is one of the many ways to be classified as self-employed. By definition, an independent contractor provides work or services on a contractual basis, whereas, self-employment is simply the act of earning money without operating within an employee-employer relationship.

Why use independent contractors instead of employees? ›

Employers like to use independent contractors when they can because doing so allows them to avoid expenses associated with employees — taxes, training, promotions, overtime, benefits, unemployment insurance, workers' compensation insurance, FMLA leave, 401K matches, and so on.

Can someone be called an independent contractor but really be an employee? ›

What matters is that the employer has the legal right to control the details of how the services are performed. If an employer-employee relationship exists (regardless of what the relationship is called), then you are not an independent contractor and your earnings are generally not subject to self-employment tax.

What is the difference between a sole proprietor and an independent contractor? ›

If you receive income from services or products you sell – and incur expenses to generate that income – you are a sole proprietor. The term “independent contractor” describes the relationship between a client and a self-employed person who provides services as an autonomous business rather than as a full-time employee.

Can you be your own contractor in Washington State? ›

Can I Be My Own General Contractor in Washington State? Yes. A homeowner is not required to hire a general contractor to make improvements to their own property.

Does an LLC need a business license in Washington State? ›

Corporation or Limited Liability Company (LLC) If your business structure is a Corporation, Limited Liability Company, Liability Company, or Limited Liability Partnership, you must file with the Washington Secretary of State before completing the Business License Application.

How much money should I set aside for taxes as an independent contractor? ›

As a result, it is recommended that as an independent contractor, you should save somewhere around 25%-30% of your earnings to pay your taxes.

How to handle taxes as an independent contractor? ›

You'll need to file a tax return with the IRS if your net earnings from self-employment are $400 or more. Along with your Form 1040, you'll file a Schedule C to calculate your net income or loss for your business. You can file a Schedule C-EZ form if you have less than $5,000 in business expenses.

How do I calculate taxes as an independent contractor? ›

Self-employed income is calculated by adding up all the income recorded on your 1099 forms. This includes 1099-NEC, 1099-MISC and 1099-K forms. The total earned income is then subject to the independent contractor tax rate of 15.3%.

How much does workers' comp cost an employer in Washington? ›

How much does workers' compensation insurance cost in Washington? Estimated employer rates for workers' compensation in Washington are $1.34 per $100 in covered payroll. Your cost is based on a number of factors, including: Payroll.

Are independent contractors covered by workers comp in Oregon? ›

Independent contractors are not subject to wage and hour laws, such as those governing minimum wage, overtime pay, and rest periods. However, employees of an independent contractor are subject to those laws. 4. Independent contractors are not covered by workers' compensation insurance.

What is the economic reality test in Washington state? ›

The economic realities test considers whether, as a matter of economic reality, the worker is economically dependent on the employer for work (and, therefore, an employee) or is in business for themselves (and, therefore, an independent contractor).

What is a contract employee definition? ›

Contract employees, also called independent contractors, contract workers, freelancers or work-for-hire staffers, are individuals hired for a specific project or a certain timeframe for a set fee. Often, contract employees are hired due to their expertise in a particular area, like writing or illustration.

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