The increase in litigation relating to the classification of independent contractors has led some states to enact statutes to more clearly define workers’ status in freelance roles. In 2016, the Arizona legislature passed a law permitting employers to request that workers declare in writing that they are independent contractors. This law is codified in A.R.S. § 23-1601 through 23-1604, and is known as Arizona’s Declaration of Independent Business Status. The goal of the legislation is to provide more clarity in employment classification, particularly for employers who can be subject to significant financial, legal and tax consequences for wrongful classification.
Worker Status Defined
Businesses have an obligation to correctly classify their workers as employees or independent contractors. When a worker is incorrectly classified as an independent contractor rather than an employee, he foregoes certain basic employee rights for which the company can incur significant penalties and expose itself to potential liability. Determining each worker’s status is therefore critical, but the process is not always clear.
In general, an employee is a worker who is on payroll and under the control of a boss who determines working hours, location and the process for how work should be completed. Employees are paid a predetermined amount for hours worked and receive associated benefits. An independent contractor, on the other hand, is responsible for his own social security taxes and health insurance benefits and is not entitled to other workplace benefits. The employer exerts less control over an independent contractor; the employer may assign tasks to the contractor, but the contractor is generally free to decide how to complete the tasks and in some cases, where and when to do so.
A.R.S. § 23-1601: Declaration of Independent Business Status
A.R.S. § 23-1601 provides that an employer can establish the existence of an independent contractor relationship through a signed “declaration of independent business status.” Pursuant to this statute, language in the declaration requires the signer to confirm that:
- he is an independent contractor and not an employee of the company;
- he is not eligible for benefits typically provided to employees, including unemployment benefits;
- he is responsible for obtaining proper licensure; and
- he must pay his own income taxes.
The contractor must also acknowledge at least six out of ten additional items listed in the statute that constitute evidence of independent contractor status. While this declaration serves as evidence of the worker’s status, the independent contractor has the opportunity to present evidence to refute this status in litigation. Furthermore, businesses are not required to have independent contractors sign these declarations.
Chernoff Law handles business and real estate litigation matters throughout Arizona. Contact us by calling 480-719-7307 to discuss your legal matter.