Worker Classification & the Colorado Department of Labor & Employment - John R. Dundon II, Enrolled Agent
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Worker Classification & the Colorado Department of Labor & Employment

The Perturbing New Treatment of Patents Under the Tax Cut & Jobs Act (TCJA)

Worker Classification & the Colorado Department of Labor & Employment

Worker Classification & the Colorado Department of Labor & Employment

This post is about my experiences as they pertain to the Colorado Employment Security Act of 2013.  First off let me start by saying that there are some really good hard working bureaucrats paid by our tax dollars working inside the Colorado Department of Labor & Employment.  Unfortunately like most all organizations for every ‘good’ person there is at least one jackass and they seem to coalesce in the Unemployment Insurance Operation function.  The secret is to know who they are and to avoid them as if they carry the plague.

That aside Colorado employment tax law is very similar to federal employment tax law when it comes to worker classification.  Basically the service performed by one individual for any other shall be deemed to be employment, unless it is shown that the individual is free from control and direction of the service and that the individual is customarily engaged in an independent trade, occupation, profession or business related the service performed.

The individual must be free from control and direction in the performance of the service, both under the contract for performance of the service, and in fact.  The big difference in Colorado is that the degree of control exercised by the person for whom the services are being performed over the individual performing the service, is considered slightly different than with IRS via an employment tax examination and the US Treasury via an SS-8 examination.

In Colorado evidence that an individual is engaged in an independent trade, occupation, profession or business, and is free from control and direction of the service, (AKA NOT AN EMPLOYEE) the individual and the persons for whom services are performed must demonstrate that the person by whom services are performed is not:

  1. Required to work exclusively for the person for whom services are performed; except that the individual may choose to work exclusively for the said person for a finite period of specified time.
  2. Subject to an established quality standard for the individual; except that such person can provide plans and specifications regarding the work but cannot oversee the actual work or instruct the individual as to how the work will be performed.
  3. Paid a salary or hourly rate but rather a fixed or contract rate.
  4. Disengaged during the performance of work unless the individual fails to produce results that meet specifications.
  5. Provided more than minimal training.
  6. Provided tools or benefits to the individual; except that tools and equipment may be supplied.
  7. Dictated time of performance; except for the completion schedule of work and that a range of mutually agreeable work hours may be established.
  8. Paid individually.
  9. Maintaining separate and distinct operations.

In order for the relationship to be that of an independent contractor and Company, the putative employer also has the burden of proving that the laborers are customarily engaged in an independent trade, occupation, profession or business related to the service performed. Bizarrely enough this seems to be most efficiently demonstrated when audited by demonstrating that you made sure your independent contractors were indeed advertising their services on the open market so be sure to retain business cards, invoices and even copies of advertisements paid for by the independent contractor.

However this alone is not necessarily completely sufficient – hence the jackass comment in paragraph 1. Whether the laborers provided this same type of service to other companies while providing such service to your company for example is not necessarily unto itself dispositive of whether the workers were customarily engaged in an independent trade. I have found through experience that the best way to demonstrate engagement in an independent trade in the eyes of the Colorado Labor auditors distills down to whether the individual invested in advertising for their independent trade.

One would think the worker’s separately procured liability insurance alone is sufficient in properly classifying a worker as an independent contractor because protection from inherent business risk is demonstrated by the worker – not so in initial audits – but you can appeal and if you play your cards right – WIN!

To establish that a worker is customarily engaged in an independent trade or business related to the services performed, a putative employer must show that the worker is engaged in a separate business venture, other than the provision of service for the putative employer.  The very best course of action is to have a fully signed and effectuated independent contractor agreement on file.

However in the absence of a written contract that establishes a rebuttable presumption of an independent contractor relationship, a putative employer may prove an independent contractor relationship by showing by a preponderance of the evidence that the conditions set forth in Section 8-70-115 C.R.S., outlined in the 9 points above have been satisfied. Additionally other factors that are not listed in the law may be considered.