Unemployment Insurance - Worker Classification

Is a Worker an "Employee" or an "Independent Contractor"?

Wisconsin employers (referred to as “employing units” in the unemployment insurance law until unemployment insurance coverage or an employee/employer relationship is established) have an obligation under the unemployment insurance law to classify workers correctly as either "employees" or "independent contractors". Employees are covered by the unemployment insurance law; independent contractors are not covered.

If a worker is or has been "performing services for pay" for an employing unit, there is a presumption in the law that the worker is an "employee," not an independent contractor. That presumption can only be overcome by evidence under the applicable unemployment insurance law that the worker is an independent contractor.

NOTE: The department has utilized the term "employer" in this website with the recognition that not all "employing units" are covered under the unemployment insurance law or have employee/employer relationships with their workers. Nevertheless, for ease of discussion in the context of deciding whether a worker is an independent contractor or an employee, the term "employer" is frequently used, rather than "employing unit."

Compliance and Penalties

The department works to ensure that workers are properly classified as employees or independent contractors through compliance programs. If an employer is found to be improperly classifying workers as independent contractors, penalties may result.

Steps to Classify a Worker

Choose Category of Employer

The first step in the process of determining an employer's obligation under the unemployment insurance law is to determine which of the following categories describes the employer:

• General Private Employers (services performed for any other person or entity)
• State and local government employers (service performed for a unit of state or local government)
• Nonprofit employers (services performed for an organization that is described in §501(c)(3) and exempt from federal income tax under §501(a) of the Internal Revenue Code)
• Trucking employers (services performed as a truck driver for a licensed motor carrier that leases a vehicle from the contract operator)
• Logging employers (services performed as a piece cutter or skidding operator for a forest products manufacturer or logging contractor)
• Indian tribal government employers (services performed for an Indian tribe that is federally recognized under 25 USC 450B(e))

Select the appropriate employer category to continue to worker classification tests:

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Compliance

The department works to ensure that workers are properly classified as employees or independent contractors through the field audit process and worksite compliance investigations.

Department field auditors conduct routine periodic examinations of employer records. The specific audit objectives include investigating alleged independent contractor issues, determining compliance with unemployment insurance reporting requirements, and investigating suspected unemployment insurance benefit fraud.

The department is authorized by Wis. Stat. § 103.06, to conduct compliance investigations at construction worksites as defined in Wis. Stat. § 108.18 (2)(c) to determine if workers are being properly classified as employees or independent contractors.

Penalties

If an employer is found to be utilizing misclassified workers, the employer may be liable for additional tax, interest and penalties. If as a result of an investigation an employer is found to be utilizing misclassified workers, additional tax, interest and civil penalties, including the issuance of stop work orders, may result. In addition, an employer may be subject to criminal penalties for intentional misclassification.

Administrative Penalty for Intentional Misclassification:

Wis. Stat. § 108.221(1) provides that employers engaged in construction as described in Wis. Stat. § 108.18 (2)(c), or who are engaged in the painting or drywall finishing of buildings or other structures, who knowingly and intentionally provide false information to the department for the purpose of misclassifying or attempting to misclassify an employee, shall for each incident, be assessed a penalty by the department in the amount of $500 for each employee who is misclassified, not to exceed $7,500 per incident.

The department shall consider the following factors in determining whether an employer knowingly and intentionally provided false information to the department: (1) whether the employer was previously found to have misclassified an employee in the same or substantially similar position; and (2) whether the employer was the subject of litigation or a government investigation relating to worker misclassification and the employer, as a result of that litigation or investigation, received an opinion or decision from a federal or state court or agency that the subject position or a substantially similar position should be classified as an employee. The statute provides those factors are non-exclusive; therefore, the department may also consider other factors.

Criminal Penalty for Intentional Misclassification:

Under Wis. Stat. § 108.24 (2m), any employer engaged in construction as described in § 108.18(2) (c) or engaged in the painting or drywall finishing of buildings or other structures who, after having previously been assessed an administrative penalty by the department under § 108.221 (1), knowingly and intentionally provides false information to the department for the purpose of misclassifying or attempting to misclassify an individual as a nonemployee shall be fined $1,000 for each employee who is misclassified, subject to a maximum fine of $25,000 for each violation.

The department may refer violations of this subsection for prosecution by the department of justice or the district attorney for the county in which the violation occurred.

Administrative Penalty for Coercion:

Under Wis. Stat. § 108.221 (2) (c), any employer described in § 108.18 (2) (c) or engaged in the painting or drywall finishing of buildings or other structures who, through coercion, requires an individual to adopt the status of a nonemployee shall be assessed a penalty by the department in the amount of $1,000 for each individual so coerced, but not to exceed $10,000 per calendar year.