Employee or independent contractor? Workers should understand the difference - April 21, 2009

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Media contact: Mark Varadian, communications manager, 360-902-9454

Audio: /newsandinformation/releases/audio/index.php

OLYMPIA – Knowing the difference between an “employee” and an “independent contractor” could save workers a great deal of time and frustration if they apply for unemployment benefits.

With warmer weather coming, many laid-off workers will have employment opportunities in the construction industry. Some might be presented with an unfamiliar job title as a condition for receiving a paycheck: independent contractor.

“Workers need to understand the difference between an employee and an independent contractor,” said Employment Security Commissioner Karen Lee. “Typically, an employee may be eligible for unemployment benefits, while an independent contractor is not.”

Generally, an independent contractor is not under the supervision and control of an employer, has a contract specifying the start and end dates of the provided service, brings more than his personal labor to the job, works for more than one payer at a time, has a business and other licenses, and is responsible for filing federal and state reports and taxes.

The difference is crucial if the worker applies for unemployment benefits. Since an independent contractor is considered self-employed, he would not be eligible for unemployment benefits. An employee who works under the supervision and control of an employer could be eligible for unemployment.

When classification mistakes are discovered, the business must pay back taxes for all misclassified workers, plus penalties and interest. Subsequent unemployment benefits to the employee will be delayed until the discrepancy is resolved. 

Since July 2006, the state Employment Security Department has discovered wages for 4,613 previously unreported employees, resulting in nearly $3.8 million in unpaid taxes and about $1.3 million in interest and penalties.

Anyone who suspects a case of employee misclassification can report it to Employment Security at undergroundeconomy@esd.wa.gov or 360-902-9450.

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Tax-fraud information:  /uitax/fraud/unregistered-business.php

Independent-contractor information: /uitax/taxreportsandrates/whoandwhattoreport/independent-contractors.php

Broadcast version

The warm weather will bring new employment opportunities to laid-off workers, but they need to understand the difference between an independent contractor and an employee – because if a layoff occurs, an employee could be eligible for unemployment benefits, but an independent contractor is not.

Generally, an independent contractor is not under the supervision and control of an employer and is responsible for reporting federal and state business taxes.

An employee works under the supervision and control of an employer, and the employer is responsible for federal and state tax reporting.

Anyone who suspects that an employee has been misclassified as an independent contractor should contact the Employment Security Department.

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