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Can I hire employees as independent contractors to save money on taxes in Montana? What are the requirements?

To determine whether a worker is an independent contractor or an employee in Montana, the Montana Department of Labor and Industry applies the requirements set out in ARM Title 24, chapter 35 [1.1].

Requirements for Independent Contractor Status

To qualify as an independent contractor in Montana, the worker must meet the following requirements [2.4]:

  • The worker must be free from control or direction over the performance of the services, both under the contract and in fact.
  • The worker must be engaged in an independently established trade, occupation, profession, or business.
  • The worker must have the ability to realize a profit or suffer a loss from the services rendered.
  • The worker must have the right to work for other parties without interference from the employer.
  • The worker must provide the tools, equipment, and place of work necessary to perform the services.

Independent Contractor Exemption Certificate

An Independent Contractor Exemption Certificate (ICEC) is a certificate issued by the Montana Department of Labor and Industry that certifies that a worker is an independent contractor [2.3]. To obtain an ICEC, the worker must submit an application, pay a fee, and provide supporting documentation to prove that they meet the requirements for independent contractor status [2.4]. The department has discretion to assess the reliability of the documentation and award points for each item of proof as outlined by the rule [2.4].

Independent Contractor Exemption Certificate Waiver

An Independent Contractor Exemption Certificate Waiver is available for independent contractors who meet certain requirements [2.1]. To execute a waiver, the applicant must complete the department-approved waiver form, which must be signed by the applicant and notarized. The applicant must represent on the waiver form that they are engaged in each independently established trade, occupation, profession, or business that is specifically identified on the application form, are responsible for all taxes related to their work as an independent contractor, control the details of how services are performed, and understand and agree that if the ICEC is granted, they are not eligible for and waive the right to workers’ compensation or occupational disease benefits for an injury or occupational disease related to work performed as an independent contractor in each independently established trade, occupation, profession, or business for which the ICEC is granted [2.1].

Guidelines for Determining Whether an Independent Contractor Exemption Certificate is Needed

The guidelines for determining whether an Independent Contractor Exemption Certificate is needed have been repealed [2.6].

Misrepresentations Regarding Independent Contractor Status

It is important to note that misclassifying employees as independent contractors can result in significant legal and financial consequences. The Montana Department of Labor and Industry evaluates a worker’s status pursuant to ARM 24.35.202 if the worker applied to the department for an ICEC prior to filing the present claim for workers’ compensation or unemployment insurance benefits or prior to the present audit or investigation by the department and the application for ICEC is pending determination by the department, the worker provided the hiring agent a forged ICEC, the hiring agent took affirmative steps to verify the worker’s independent contractor status, verified the worker to be an independent contractor by holding an independent contractor exemption certificate, and has documentation of the same, or the ICEC expires during the working relationship which is at issue in the present claim for workers’ compensation or unemployment insurance benefits or audit or investigation by the department [2.5].

Conclusion

It is important to carefully evaluate whether a worker is an independent contractor or an employee in Montana to avoid legal and financial consequences. If you have any doubts about whether a worker is an independent contractor or an employee, you should consult with an attorney or contact the Montana Department of Labor and Industry for guidance.

Source(s):
Jurisdiction

Montana