A vexing issue affecting companies that do business with independent contractors has been the risk of having to defend the same worker’s independent-contractor status under different tests for purposes of different laws. There are currently nine different tests used by states and federal agencies to determine whether a worker is an employee or independent contractor.
A bill has been introduced in Michigan to address this risk by harmonizing its tests. The bill, S.B. 645, would establish a uniform test to determine a worker’s status as an employee or independent contractor. It appears that the proposed test would apply for purposes of all state laws. Michigan State Senator Michael Kowall (R) introduced S.B. 645, entitled the “Employee Classification Act,” on December 8, 2015.
The bill provides that “Except for employment in the trucking and messenger courier industries, an employer-employee relationship is determined using the 20-factor test announced by the Internal Revenue Service of the United States Department of Treasury in Revenue Ruling 87-41, 1987-1 C.B. 296.”
To determine whether a worker in the trucking and courier industries is an employee or independent contractor the bill would deem a worker to be an employee unless all of the following six elements are satisfied:
(a) The individual owns the vehicle or vessel or holds it under a bona fide lease arrangement that is not through an arrangement, loan, or loan guarantee with the contracting entity or any affiliate of the contracting entity. This requirement does not apply to temporary replacement lease agreements.
(b) The individual is responsible for substantially all of the principal operating costs of the vehicle or vessel and equipment, including maintenance, fuel, repairs, supplies, vehicle insurance, and personal expenses. If the contracting entity pays the individual only a fuel surcharge and incidental costs, such as tolls, permits, or lumper fees, the individual meets the requirements of this subdivision.
(c) The individual is responsible for supplying the necessary services to operate the vehicle or vessel and equipment.
(d) The individual’s compensation is based on factors related to the work performed, such as a mileage-based rate or a percentage of any schedule of rates, and is not solely based on hours or time expended.
(e) The individual substantially controls the means and manner of performing services in conformance with regulatory requirements and specifications of a shipper.
(f) The contracting entity and the individual sign and date an agreement that the individual will substantially meet the conditions in subdivisions (a) to (e) and that the individual agrees to be an independent contractor and not an employee. The agreement shall be produced on the demand of the director or the director’s agent.
In addition the bill provides that an “individual from whom an employer is required to withhold federal income tax is prima facie” an employee.
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