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

Based on the documents provided, it is important to note that misclassifying employees as independent contractors can result in significant legal and financial consequences. In Washington State, there are specific requirements that must be met in order for an individual to be considered an independent contractor.

Requirements for Independent Contractors in Washington State

According to WARC 39.12.100, an individual employed on a public works project is not considered to be a laborer, worker, or mechanic when:

1. The individual has been and is free from control or direction over the performance of the service, both under the contract of service and in fact;
2. The service is either outside the usual course of business for the contractor or contractors for whom the individual performs services, or the service is performed outside all of the places of business of the enterprise for which the individual performs services, or the individual is responsible, both under the contract and in fact, for the costs of the principal place of business from which the service is performed;
3. The individual is customarily engaged in an independently established trade, occupation, profession, or business, of the same nature as that involved in the contract of service, or the individual has a principal place of business for the business the individual is conducting that is eligible for a business deduction for federal income tax purposes other than that furnished by the employer for which the business has contracted to furnish services;
4. On the effective date of the contract of service, the individual is responsible for filing at the next applicable filing period, both under the contract of service and in fact, a schedule of expenses with the internal revenue service for the type of business the individual is conducting;
5. On the effective date of the contract of service, or within a reasonable period after the effective date of the contract of service, the individual has an active and valid certificate of registration with the department of revenue, and an active and valid account with any other state agencies as required by the particular case, for the business the individual is conducting for the payment of all state taxes normally paid by employers and businesses and has registered for and received a unified business identifier number from the state of Washington;
6. On the effective date of the contract of service, the individual is maintaining a separate set of books or records that reflect all items of income and expenses of the business which the individual is conducting; and
7. On the effective date of the contract of service, if the nature of the work performed requires registration under chapter 18.27 RCW or licensure under chapter 19.28 RCW, the individual has a valid contractor registration pursuant to chapter 18.27 RCW or an electrical contractor license pursuant to chapter 19.28 RCW.

It is important to note that meeting these requirements does not automatically classify an individual as an independent contractor. The determination of whether an individual is an employee or an independent contractor is based on the totality of the circumstances, and no one factor is determinative.

Penalties for Misclassification

Misclassifying employees as independent contractors can result in significant legal and financial consequences. According to WAAC 192-300-230, a professional employer organization may collect and make payments on behalf of a client employer, but the client employer remains liable for the payments of any taxes, interest, or penalties due. The department may attempt to collect any payments due from the professional employer organization before attempting to collect from the client employer.

If a professional employer organization reports employees of a client employer as its own employees, a first violation will be considered an incorrect report for the professional employer organization and an untimely report for the client employer under RCW 50.12.220(2). A second violation will be considered knowing misrepresentation under RCW 50.12.220(3). A third violation will be considered grounds for revocation of the authority of a professional employer organization to act on behalf of its client employers.

Conclusion

In conclusion, misclassifying employees as independent contractors can result in significant legal and financial consequences. It is recommended that you consult with a legal professional to ensure that you are in compliance with all relevant laws and regulations.

Jurisdiction

Washington

• Privacy