Employee vs. Independent Contractor Information

Employee vs. Independent Contractor Information                  

Are you an Employee or Independent Contractor?

Workers’ Compensation, unemployment insurance, employer-provided medical insurance, overtime wages . . . in order to receive these benefits it must be first determined if you are an “employee” or an “independent contractor.”  The Hawaii Department of Labor and Industrial Relations (DLIR) is required by law to apply different tests or standards to determine whether you are an employee for the purpose of receiving benefits under a particular program.

Each determination is based on a case-by-case basis looking at the various factors of the relationship between the individual and company, business or employer.  Also there are different classes of employment that are considered “excluded” from the requirements of the law.  For example, if you are a realtor paid by commission, your employer is not required to provide you workers’ compensation benefits.  If you are excluded under the law (click here for list of exclusions) there is no need to apply the statutory required test.

The formal legal analysis used by the DLIR (click here for legal analysis) involves a few different tests that share a common theme, and the DLIR's decision – regardless of what test is being applied – relies on the same basic factors.  To assist you in determining your legal status, we have outlined the 4-core factors the DLIR will consider to determine your legal status:

1. Control – Behavioral and Financial

• You are likely an “employee” if you are required to follow specific instructions on how to perform your work, follow a specific work schedule and regimen in performing your work, wear a uniform or adhere to a specific dress code, and receive reimbursement for your expenses.

• You are likely a contracted individual or “independent contractor” if you are responsible to deliver a finished product or service without the contracting business providing any supervision over your work hours or methods and details of performance, except generally how and when the finished product or service should be delivered.

2. Independent Established Business

• You are likely an "employee" if you don’t have an independently established business.

• You are likely an "independent contractor" if you have an independently established business.  Evidence of such may include: 

  • Possession of a valid business license;
  • Advertisement to the public,
  • Other customers or clients;
  • An established office or place of business;
  • An established business entity (e.g. corporation, LLC, LLP, etc.);
  • An established account with the IRS and State Department of Tax;
  • Your business was functioning before the contract and will continue to operate following the completion of the contract.
    
    
    
    

3. Opportunity to realize a profit or loss

• You are likely an "employee" if the business will absorb all (or a vast majority) of the business loss and retain all (or a vast majority) of the business profits.

• You are likely an "independent contractor" if you may suffer a loss in the business.

4. Furnishing of Tools, Supplies, and Material

• You are likely an "employee" if you are furnished all or the majority of the supplies and tools you need to perform your job.

• You are likely an "independent contractor" if you purchase the tools and supplies to perform a task or complete a finished product.