State Rep. Warren Petersen teams up with NFIB/Arizona State Director Farrell Quinlan and David Selden of The Cavanagh Law Firm to produce nationally ground-breaking law for independent contractors
These entrepreneurially spirited independent contractors, however, have come under intense scrutiny from the state and federal governments. But a new law in Arizona, the first of its kind anywhere, properly rewards, not punishes, the labor of individuals.
Independent contractors are commonly used by businesses in Arizona. However, the classification of workers as either “W-2” employees or “1099” independent contractors is not uniform, and this lack of uniformity can create uncertainty, confusion, risk and costs among businesses and workers.
It also exposes businesses to unexpected liability in the event government regulators retroactively reclassify their 1099 workforce as W-2 employees.
While a business and the contractor may consider their relationship to be an independent contractor relationship, unemployment insurance audits by the state often results in the reclassifying of workers as employees, causing the business to have to pay for all back income tax withholdings, workers compensation premiums, unemployment insurance taxes and other mandated benefits like Obamacare.
The new law establishes a Declaration of Independent Business Status (DIBS) that allows workers and businesses to create a legal presumption for state enforcement agencies of a valid independent contractor relationship by:
- the independent contractor executing a DIBS setting forth the intent to be an independent contractor
- the rights that they have as an independent contractor
- and the contracting party acting in a manner consistent with the DIBS.
The major acknowledgements required in the DIBS agreement include:
- the contractor operates their own independent business;
- the contractor’s services do not establish any rights arising from an employment relationship;
- the contractor is responsible for all taxes (such as income, FICA, Medicare, workers’ compensation, etc.) and the contracting party will not withhold any taxes;
- the contractor is responsible for obtaining and maintaining any required registration, licenses or other authorizations;
- the contractor is not insured under the contracting party’s health insurance coverage or workers’ compensation insurance coverage;
- the contractor is not only able but expected to perform services for other parties;
- the contractor is not economically dependent on the services performed for the contracting party;
- the contracting party does not dictate the performance, methods or process to perform services;
- the contractor determines the days worked and the time periods of work;
- the contractor is responsible for providing all tools and equipment needed;
- and, the contractor is responsible for all expenses incurred by the contractor in performing the services.