Income tax withholding. Unemployment insurance. Beginning July 1, 2011, at the state revenue department’s request, the state labor department is authorized to determine whether a worker is an employee or independent contractor. These determinations will be binding for income tax withholding purposes.
To determine whether a worker is an employee or independent contractor, the labor department will review the totality of the circumstances of the worker’s employment. Employers will be deemed to have made a valid classification if they have a reasonable basis for choice of classification. If a reasonable basis for classifications can’t be established, the analysis of whether workers’ status will be based on the level of control employers exercise over them. Workers will be considered employees if their employers retain the right to control the means by which their work is performed and the manner and means by which the end result is accomplished. In addition, penalties have increased for misclassification. (H.B. 2135, L. 2011)