January 2010

January 2010

COLORADO MISCLASSIFICATION OF EMPLOYEES AS INDEPENDENT CONTRACTORS ACT

In the last legislative session, Colorado’s legislature adopted and the Governor signed the Misclassification of Employees as Independent Contractors Act (MEICA). This Act provides guidance and penalties regarding whether a worker is an employee or an independent contractor for purposes of unemployment insurance under the Colorado Employment Security Act (CESA). It does not address the distinction between employees and independent contractors for other purposes such as federal taxes, Colorado payroll taxes and Colorado workers’ compensation law although it might influence a court’s views for those matters.

CESA provides nine factors to be considered in determining whether a worker is an employee or an independent contractor. The factors can be met with factual evidence or a written document that can create a rebuttable presumption a worker is an independent contractor if the document contains a conspicuous disclaimer that (a) the independent contractor is not entitled to unemployment insurance benefits from the person engaging the contractor, and (b) the contractor is obligated to pay federal and state income tax on any monies earned from the contractor’s work.

MEICA creates a process for a worker who believes he or she has been misclassified to file a complaint with the Colorado Department of Labor and Employment’s Division of Employment and Training (the Division). When a complaint is filed, the Division has 30 days to determine if an investigation is warranted. If an investigation is undertaken, the person engaging the complaining party must cooperate with the investigation and provide necessary information.

If the Division determines there has been a classification violation, the employer can be required to pay unemployment taxes that were not previously paid together with interest. If there is a willful disregard of the law, the employer may be fined $5,000 per misclassified employee for the first misclassification, and up to $25,000 per misclassified employee for any subsequent violation. If there is a second or subsequent violation, the employer can be prohibited from contracting with, or receiving funds from, the State of Colorado for up to two years.

MEICA also creates a process through which an employer can seek advice on how a worker is to be properly classified. The Division will provide an Advisory Opinion when one is requested as to whether a worker is properly classified as an independent contract rather than as an employee.

This Newsletter is provided for information purposes only. Accordingly, the information is general in nature and is not intended to address a specific issue or problem. The reader should seek legal counsel of his or her choice for specific problems. The receipt of this Newsletter does not create an attorney-client relationship with the author or the law firm of Dean, Dunn & Phillips LLC.