Ensuring Your Independent Contractors Don’t ‘Deliver’ Wisconsin Unemployment Insurance Tax Liability
Those doing business in the Badger State should take note — in a recent case, the Wisconsin Court of Appeals determined that delivery drivers who were paid as independent contractors were improperly classified as such.
By way of background, Wisconsin statute uses nine factors to determine if workers are employees for purposes of unemployment insurance tax liability. The company bears the burden to establish at least six of the nine factors are met for individuals to be exempt and for the company to therefore avoid paying unemployment insurance tax on its independent contractors.
In the recent Amazon Logistics, Inc. v. Labor and Industry Review Commission, et al. case, the Wisconsin Court of Appeals analyzed these nine factors in detail. The company, Amazon Logistics, challenged the Department of Workforce Development and Labor and Industry Review Commission’s determinations that its independent delivery drivers qualified as employees.
Amazon Logistics coordinates product delivery via numerous pathways, including a smartphone application, “Amazon Flex,” used by individual drivers. Individual drivers download the app and apply to perform delivery services for the company. As part of the application, drivers sign off on the company’s “Independent Contractor Terms of Service.” Individuals accepted to the Amazon Flex program may then select blocks of time to make deliveries. During such delivery blocks, the drivers pick up packages from the warehouse, scan the packages into the app before loading them into their own vehicle, and then proceed to deliver the packages, indicating completion via the app. The app also provides a suggested delivery route. Individuals are paid when the delivery block is completed.
Amazon Logistics contended these delivery drivers were not employees and did not trigger unemployment insurance taxation. Ultimately, however, the court concluded that the company could only meet five of the nine factors required to exempt the individuals, which meant they are considered employees for unemployment insurance taxation purposes.
The court’s analysis offered the following guidance in particular, for employers hoping to avoid the same outcome:
- The terms of your independent contractor agreement are key evidence in an unemployment insurance taxation dispute.
- Details in the Independent Contractor Agreement requiring individuals to provide and maintain a smartphone, vehicle, and other equipment for performing the services established both that the individuals incurred the main expenses related to services performed, and that the individuals had recurring business liabilities or obligations under the Agreement — factors in favor of independent contractor status.
- The court also noted that the agreement’s indemnification provision established that individuals were subject to a monetary penalty for unsatisfactory work — another factor in favor of independent contractor status.
- Be able to establish if your independent contractors work for other entities.
- Whether your independent contractors perform work for other entities is relevant to numerous factors in this analysis.
- Amazon Logistics contended its individual drivers also performed services on other digital platforms in the gig economy, but lacked sufficient evidence in the record to affirmatively establish this fact. Anecdotal observations of stickers seen on one individual’s car was insufficient to establish that work was indeed being performed for other entities.
- Based on Wisconsin’s nine-factor test, had the company offered more solid evidence on this point, they could have established another three factors in their favor, which would have avoided the employee classification.
Businesses with independent contractors in Wisconsin should carefully review this case to ensure proper worker classification. And employers everywhere should pay close attention to the various state and federal criteria applicable to independent contractor status.
