New Arizona Law Creates a Rebuttable Presumption of Independent Contractor Status
Jun. 17, 2016|By Kercsmar & Feltus
Effective August 6, 2016, Arizona law will allow employing entities and independent contractors to take advantage of a rebuttal presumption that an independent contractor relationship exists if certain conditions are met. House Bill 211, more commonly known as Declaration of Independent Business Status (DIBS), amends Title 23 of the Arizona Revised Statues by adding Chapter 10 relating to employment relationships, which includes two new statutes: A.R.S. § 23-1601 and A.R.S. § 23-1602.
A determination that an individual is an employee rather than an independent contractor can have significant legal, tax, and other financial implications for the employing entity. According to the National Federation of Independent Business, “Arizona business owners often face a difficult task in defining who is and is not an independent contractor. The rules are established by a variety of agencies, leaving businesses open to accusations of misclassifying workers. In the event of an audit, small businesses could be liable for fees and back taxes.” See NFIB article entitled Arizona Aims to Clarify Independent Contractor Issues, dated March 15, 2016. State Representative Warren Peterson, the sponsor of DIBS, sought to define the independent contractor relationship under Arizona law, thereby enabling businesses and individuals to establish their shared intent for the status of their relationship from its inception. DIBS, which was designed to be adaptable to businesses in a wide variety of industries, seeks to provide business owners and individuals alike with the guidance they need to appropriately and confidently frame their business relationships under Arizona law.
In order for the rebuttable independent contractor presumption to be applicable to a particular working relationship, the individual must sign a declaration stating that he or she is working as an independent contractor. A.R.S. § 23-1601(B). The statute provides a form declaration and outlines several factors that the individual must declare are applicable in the working relationship in order to create this presumption:
This declaration of independent business status is made by (contractor) in relation to services performed by the contractor for or in connection with (contracting party). The contractor states and declares the following:
1. The contractor acknowledges that the contractor operates the contractor’s own independent business and is providing services for or in connection with the contracting party as an independent contractor.
2. The contractor acknowledges that the contractor is not an employee of the contracting party and the services rendered for or in connection with the contracting party do not establish any right to unemployment benefits or any other right arising from an employment relationship.
3. The contractor is responsible for all tax liability associated with payments received from or through the contracting party and the contracting party will not withhold any taxes from payments to the contractor.
4. The contractor is responsible for obtaining and maintaining any required registration, licenses, or other authorization necessary for the services rendered by the contractor.
5. The contractor acknowledges at least six of the following:
(a) that the contractor is not insured under the contracting party’s health insurance coverage or workers’ compensation insurance coverage.
(b) that the contracting party does not restrict the contractor’s ability to perform services for or through other parties and the contractor is authorized to accept work from and perform work for other businesses and individuals besides the contracting party.
(c) that the contractor has the right to accept or decline requests for services by or through the contracting party.
(d) that the contracting party expects that the contractor provides services for other parties.
(e) that the contractor is not economically dependent on the services performed for or in connection with the contracting party.
(f) that the contracting party does not dictate the performance, methods, or process the contractor uses to perform services.
(g) that the contracting party has the right to impose quality standards or a deadline for completion of services performed, or both, but the contractor is authorized to determine the days worked and the time periods of work.
(h) that the contractor will be paid by or through the contracting party based on the work the contractor is contracted to perform and that the contracting party is not providing the contractor with a regular salary or any minimum, regular payment.
(i) that the contractor is responsible for providing and maintaining all tools and equipment required to perform the services performed.
(j) that the contractor is responsible for all expenses incurred by the contractor in performing the services.
6. The contractor acknowledges that the terms set forth in this declaration apply to the contractor, the contractor’s employees, and the contractor’s independent contractors.
Importantly, the failure to have such a declaration will have no impact on an employee versus independent contractor determination, and the absence of such a declaration will not be admissible to deny the existence of an independent contractor relationship. A.R.S. § 23-1601(A). Finally, A.R.S. § 23-1602 states that, except for the enforcement of Chapter 2, Article 10 of Title 23, supervision or control exercised by the employing entity and performed in order to comply with a statute, rule, code, licensing requirement, or professional or ethical standards, whether adopted by the federal government or state of Arizona (or a political subdivision therein), cannot be considered when determining if an employment or independent contractor relationship exists.