Worker's Compensation - Worker Classification
Is a Worker an "Employee" or an "Independent Contractor"?
When is an employer required to have a worker's compensation policy under the Act?
Under s. 102.04(1) (b) of the Act, an employer becomes subject to the Act and must carry a worker's compensation insurance policy if:
- The employer employs three or more full-time or part-time employees. This employer must get insurance on the day they employ the third person.
- The employer has 1 or more full-time or part-time employees and has paid gross combined wages of $500 or more in any calendar quarter for work done in Wisconsin. This employer must have insurance by the 10th day of the 1st month of the next calendar quarter. There are four calendar quarters in a calendar year; the 1st quarter is January through March; the 2nd quarter is April through June; the 3rd quarter is July through September; and the 4th quarter is October through December.
- The farm (farmer) employs 6 or more employees (at 1 or more locations) on the same day for 20 days (consecutive or non-consecutive) during a calendar year. A calendar year is January through December. This farmer must have insurance within 10 days after the 20th day of employment. Some relatives of the farmer are not counted towards the 6 employees, but will be covered under a policy if one is purchased (See Question 37 for farming information).
Wisconsin law requires that a subject employer with employees working in Wisconsin must have a worker's compensation insurance policy with an insurance company licensed to write worker's compensation insurance in Wisconsin. Each individual employer must provide a worker's compensation insurance policy for its employees. An employer cannot provide worker's compensation insurance coverage for another employer's employees even if they voluntarily sign a contract to provide the coverage. Every employer, as described in s. 102.04(1), Wis. Stats., is required under s. 102.28(2), Wis. Stats., to have a worker's compensation insurance policy in the name of the employer/owner or in the name of the business entity.
Who is an employee under the Worker's Compensation Act?
Under section 102.07(4)(a) of the Act, an employee is defined as "[e]very person in the service of another under any contract of hire, express or implied, all helpers and assistants of employees, whether paid by the employer or employee, if employed with the knowledge, actual or constructive, of the employer, including minors, who shall have the same power of contracting as adult employees…but not including (1) domestic servants, (2) any person whose employment is not in the trade, business, profession or occupation of the employer,…unless the employer elects to cover them."
How do I determine whether a worker is an employee or independent contractor?
Under section 102.07 (8) of the Wisconsin Statutes, a person is required to meet a nine-part test before they are considered an independent contractor rather than an employee. A person is not an independent contractor for worker's compensation purposes just because the person says they are, or because the contractor over them says so, or because they both say so, or even if other regulators (including the federal government and other state agencies) say so. The nine-part statutory test set forth under s. 102.07 (8) of the Act, must be met before a person working under another person is considered not to be an employee. To be considered an independent contractor and not an employee, an individual must meet and maintain all nine of the following requirements:
- Maintain a separate business.
- Obtain a Federal Employer Identification number from the Federal Internal Revenue Service (IRS) or have filed business or self-employment income tax returns with the IRS based on the work or service in the previous year. (See note below.)
- Operate under specific contracts.
- Be responsible for operating expenses under the contracts.
- Be responsible for satisfactory performance of the work under the contracts.
- Be paid per contract, per job, by commission or by competitive bid.
- Be subject to profit or loss in performing the work under the contracts.
- Have recurring business liabilities and obligations.
- Be in a position to succeed or fail if business expense exceeds income.
Note: When requesting a Federal Employer Identification Number (FEIN) from the IRS, you must inform the IRS that you are required by Wisconsin Worker's Compensation law to obtain a FEIN. A social security number cannot be substituted for a FEIN and does not meet the legal burden of s. 102.07 (8).
Except as provided in pars. (b) and (bm), every independent contractor is, for the purpose of this chapter, an employee of any employer under this chapter for whom he or she is performing service in the course of the trade, business, profession or occupation of such employer at the time of the injury.
(b) An independent contractor is not an employee of an employer for whom the independent contractor performs work or services if the independent contractor meets all of the following conditions:
- Maintains a separate business with his or her own office, equipment, materials and other facilities.
- Holds or has applied for a federal employer identification number with the federal internal revenue service or has filed business or self-employment income tax returns with the federal internal revenue service based on that work or service in the previous year.
- Operates under contracts to perform specific services or work for specific amounts of money and under which the independent contractor controls the means of performing the services or work.
- Incurs the main expenses related to the service or work that he or she performs under contract.
- Is responsible for the satisfactory completion of work or services that he or she contracts to perform and is liable for a failure to complete the work or service.
- Receives compensation for work or service performed under a contract on a commission or per job or competitive bid basis and not on any other basis.
- May realize a profit or suffer a loss under contracts to perform work or service.
- Has continuing or recurring business liabilities or obligations.
- The success or failure of the independent contractor's business depends on the relationship of business receipts to expenditures.
(bm) A real estate broker or salesperson who is excluded under s. 452.38 is not an employee of a firm, as defined in s. 452.01 (4w), for whom the real estate broker or salesperson performs services unless the firm elects under s. 102.078 to name the real estate broker or salesperson as its employee.
(c) The division may not admit in evidence any state or federal law, regulation, or document granting operating authority, or license when determining whether an independent contractor meets the conditions specified in par. (b) 1. or 3.
Are there penalties if an employer does not comply with its duty to insure?
There are mandatory penalties if an employer does not obtain and maintain a worker's compensation insurance policy when required to have one. If an employer does not comply, the employer risks 1 or all of the following:
- A penalty of twice the amount of premium not paid during an uninsured time period or $750, whichever is greater. Under certain circumstances, an employer may be subject to a penalty of $100 for each day they are uninsured up to 7 days (ss. 102.82(2)(a) and 102.82(2)(ag), Wis. Stats.).
- Closure of the business, including a suspension of all operations until the employer is in compliance with the insurance requirements of the Act (s. 102.28(4), Wis. Stats.).
- An uninsured employer is personally liable for uninsured benefit claims for which their injured employees are eligible. (s. 102.28(5), Wis. Stats.)
Are there any exceptions?
There are a few classes of workers who are covered by federal laws and are not covered by the Act. Employees of the federal government (such as postal workers, employees at a veterans administration hospital, or members of the armed forces) are covered by federal laws. People who work on interstate railroads are covered by the Federal Employers Liability Act. Seamen on navigable waters are covered by the Merchant Marine Act of 1920, and people loading and unloading vessels are covered by the Longshoremen's and Harbor Worker's Compensation Act.
The only employee exceptions to the Act's insurance requirement are: (1) domestic servants; (2) any person whose employment is not in the trade, business, profession or occupation of the employer; (3) some farm employees; (4) volunteers, including volunteers of non-profit organizations that receive money or other things of value totaling not more than $10.00 per week; (5) religious sect members that qualify and are certified for an exemption; (6) employees of Native American tribal enterprises (including casinos), unless the tribe elects to waive its sovereign immunity and voluntarily become subject to the Act; and, (7) real estate brokers, agents and salespersons that satisfy the two elements pursuant to s. 452.38, Wis. Stats. Virtually all other workers and employers are subject to the Act.
If you need help in deciding whether you are subject to the Wisconsin Worker's Compensation Act and need to carry worker's compensation insurance, please visit the Worker's Compensation Employer Resources page, email us at firstname.lastname@example.org, or call us at (608) 266-3046.
Steps to Classify a Worker
If you are an employer or a worker and want to determine how to properly
classify a worker as either an employee or an independent contractor for
worker's compensation insurance, continue to the worker classification test to begin the process:
Begin the Process
- Any Contract of Hire
- A contract of hire means that the person performs
services for which he or she is compensated. Compensation is something of value
and may be cash or in-kind.
- Domestic Servant
- Although neither the statutes nor case law provide a
definition of "domestic servant" as it is used in s. 102.07(4) of the Act, the
department has consistently ruled that persons hired in a private home to
perform general household services such as nanny, baby-sitting, cooking,
cleaning, laundering, gardening, yard and maintenance work and other duties
commonly associated with the meaning of domestic servant, meet the definition of
domestic servant intended by the Act.
- Trade, business, profession or occupation of the employer
- Cornelius v.
Industrial Commission, 242 Wis. 183, 185 (1943) defines a trade or business as
an occupation or employment habitually engaged in for livelihood or gain. If a
person's employment is in the trade, business, profession or occupation of the
employer, he or she is an employee, no matter how casual or isolated the
employer's trade, business, profession or occupation may be. For example,
typically a home-owner who hires someone to mow his or her lawn is not an
employer subject to the Act because being a home-owner is not associated with a
trade, business, profession or occupation.