Worker Misclassification for Labor Standards

Using the 6-part Economic Realities test to determine worker classification

Under Wisconsin law, employers must correctly classify workers as employees or, when appropriate, independent contractors. Worker misclassification occurs when an employer fails to comply with Wisconsin law by treating workers as independent contractors when they should be treated as employees.

Under labor standards laws, including wage and hour laws, workers are presumed to be employees unless the employer can prove otherwise.

The labor standards test to determine how a worker is classified has 6 parts. The 6-part economic realities test determines whether the worker is economically dependent upon the employer. The first and most important consideration is the employer's degree of control.

1. Degree of Control

Does the employer have the right to control the worker?
If yes, the worker is likely an employee.
If no, the worker is likely an independent contractor.

*If the employer has the right to control the worker, the worker is likely an employee regardless of outcome of the remaining parts of this test.

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2. Profit or Loss

Do the worker's managerial skills result in the worker experiencing a profit or loss?
If yes, the worker is likely an independent contractor.
If no, the worker is likely an employee.

*If a worker's managerial skills do not impact their income, they are likely an employee.

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3. Investment

Does the worker invest their own money into the business, use their own equipment, or provide labor or materials?
If yes, the worker is likely an independent contractor.
If no, the worker is likely an employee.

*If a worker is responsible for providing their own tools or equipment, the worker is likely an independent contractor. If the employer provides the material, tools, or equipment the worker is likely an employee.

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4. Special Skill

Does the worker use business skills, judgement, and initiative to find clients or jobs?
If yes, the worker is likely an independent contractor.
If no, the worker is likely an employee.

*If a worker markets themselves to find clients and jobs, they are likely an independent contractor. Special skills refer to business skills and not the technical skills of the work being performed.

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5. Degree of Permanence

Does the worker assume to have a permanent position with the employer?
If yes, the worker is likely an employee.
If no, the worker is likely an independent contractor.

*The more permanent a position, the more likely it is that the worker is an employee.

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6. Integral Part

Does the worker perform work that is directly related to, or integrated into, the employer's business?
If yes, the worker is likely an employee.
If no, the worker is likely an independent contractor.

*If the services being provided by the worker are substantially different from the employer's business, the worker is likely an independent contractor.

Remember, every employment situation is unique. To correctly classify workers, start by examining the relationship between the employer and the worker. Is the worker economically dependent upon the employer? The more dependent the worker is on the employer, the more likely it is that the worker is an employee.

Please note that not all or even most of the 6-part Economic Realities test need be met for a worker to be classified as an employee. Worker classification is based on all the circumstances in the relationship between the worker and the employer

If you have questions about how to determine if a worker is an employee or independent contractor under labor standards laws, please email the Equal Rights Division, or call (608) 266-6860.