Author: David Griffiths, Insurance By Ken Brown, Inc., firstname.lastname@example.org
There is no single definition of “Independent contractor” under Florida law. Employers must determine whether a worker is an employee or an independent contractor, so they can correctly include all employees on their Employer's Quarterly Report (Form RT-6). Misclassification of workers is not just a tax reporting issue; it also affects insurance claims and premiums as well as claims for unemployment assistance benefits. If a person files a claim for benefits and the employer has not been including the person on the quarterly report, this can cause a delay in benefit payments.
The intentional misclassification of an employee as a subcontractor is a felony in Florida. To meet the definition of independent contractor, at least four of the following criteria must be met:
(I) The independent contractor maintains a separate business with his or her own work facility, truck, equipment, materials, or similar accommodations;
(II) The independent contractor holds or has applied for a federal employer identification number, unless the independent contractor is a sole proprietor who is not required to obtain a federal employer identification number under state or federal regulations;
(III) The independent contractor receives compensation for services rendered or work performed and such compensation is paid to a business rather than to an individual;
(IV) The independent contractor holds one or more bank accounts in the name of the business entity for purposes of paying business expenses or other expenses related to services rendered or work performed for compensation;
(V) The independent contractor performs work or is able to perform work for any entity in addition to or besides the employer at his or her own election without the necessity of completing an employment application or process; or
(VI) The independent contractor receives compensation for work or services rendered on a competitive-bid basis or completion of a task or a set of tasks as defined by a contractual agreement, unless such contractual agreement expressly states that an employment relationship exists.
If four of the criteria listed above do not exist, an individual may still be presumed to be an independent contractor and not an employee based on full consideration of the nature of the individual situation with regard to satisfying any of the following conditions:
(I) The independent contractor performs or agrees to perform specific services or work for a specific amount of money and controls the means of performing the services or work.
(II) The independent contractor incurs the principal expenses related to the service or work that he or she performs or agrees to perform.
(III) The independent contractor is responsible for the satisfactory completion of the work or services that he or she performs or agrees to perform.
(IV) The independent contractor receives compensation for work or services performed for a commission or on a per-job basis and not on any other basis.
(V) The independent contractor may realize a profit or suffer a loss in connection with performing work or services.
(VI) The independent contractor has continuing or recurring business liabilities or obligations.
(VII) The success or failure of the independent contractor’s business depends on the relationship of business receipts to expenditures.
Fla. Stat. Ch. 443 governs whether services performed constitute employment subject to the Florida Reemployment Assistance Program Law. This law provides that employment includes service performed by individuals under the usual common-law rules applicable in determining an employer-employee relationship. The common-law rules look primarily at 10 factors of the working relationship to determine if the worker is an employee or an independent contractor. Florida's common-law criteria are similar to, but independent of, the Internal Revenue Service's criteria for determining independent contractor status.
Fla. Stat. Ch. 440 establishes workers’ compensation coverage requirements for employers.
Construction Industry: An employer in the construction industry who employs one or more part-or full-time employees must obtain workers’ compensation coverage. Sole proprietors, partners and corporate officers are considered employees. Members of a limited liability company are considered corporate officers. Corporate officers may elect to exempt themselves from the coverage requirements of Chapter 440.
A construction industry contractor who subcontracts all or part of its work must obtain proof of workers’ compensation coverage or a Certificate of Election to be Exempt from all subcontractors before any work is done. If the subcontractor is not covered or exempt, for purposes of workers’ compensation coverage, the subcontractor’s employees shall become the statutory employees of the contractor. The contractor will be responsible to pay any workers’ compensation benefits to the subcontractor and its employees.
Pursuant to Rule 69L-6.018: Misclassification of Employees as Independent Contractor of the Florida Administrative Code and the Florida Administrative Register, an employer who fails to secure compensation as required by Sections 440.10(1) and 440.38(1) for each employee classified by the employer as an independent contractor but who does not meet the criteria of an independent contractor specified in Section 440.02, shall be assessed a penalty.
Misclassifying employees to lower premiums or treating employees as subcontractors when they are not to hide or conceal payroll is a criminal violation of 440.105 and constitutes a felony of the first, second or third degree depending on the monetary value of the fraud as provided in s. 775.082, s. 775.083, or s. 775.084.
Memorandum of Understanding
The Department of Labor’s Wage and Hour Division entered into a Memorandum of Understanding (MOU) with the Florida Department of Revenue, General Tax Administration with the specific and mutual goals of providing clear, accurate and easy-to-access compliance information to employers, employees and other stakeholders, and of sharing resources and enhancing enforcement by conducting joint investigations and sharing information. The MOU was signed on Jan. 13, 2015 and it expires on Jan. 13, 2018
In 2014, Florida was one of 19 states awarded a grant by the U.S. Department of Labor for continued independent contractor misclassification detection and enforcement.
Cantor v. Cochran, 184 So.2d 173 (Fla. 1966) (In this workers’ compensation case the Florida Supreme Court set out the ten factors, as formulated by the Restatement (Second) of Agency § 220, to be considered in determining whether one is an employee or an independent contractor).
T & T Communications, Inc. v. State Dept. of Labor and Employment Sec., 460 So.2d 996 (Fla. App. 2 Dist., 1984) (Although the case law in Florida requires that a number of factors be considered in making a determination of employee or independent contractor status, the most important factor is the extent of control exercised by the employer).
C. Hyland and L. Quigley, Determination of Employee Status Right To Control v. Economic Reality – Is There A Difference?, 61 Florida Bar Journal 43 (January 1987).