Colorado’s Criteria for Contractor Status
Colorado’s Take On Employee Verus Independent Contractor
A person hired to perform services for pay is presumed by law to be an employee unless they meet the definition of an independent contractor or qualify under a specific exemption provided by workers’ compensation laws. A person who works as an independent contractor and can prove that the person meets the legal definition of independent contractor is not an employee and is not entitled to workers’ compensation benefits unless the person buys a separate policy.
If a business hires an individual as an independent contractor, the independent contractor must be:
- Free from the business’ control and direction over how the service is performed; and
- Customarily engaged in an independent trade, occupation, profession, or business related to the service being performed.
These are the two key principles of independent contracting.
A written contract may be helpful in proving independent contractor status and is always helpful in defining the work relationship. However, the actual facts of the work relationship are the most important evidence. If the actual facts differ from what the written contract says, the facts will control. A list of important criteria about written contracts is provided in the section: What is the value of written contracts with independent contractors?
It is important to remember that if a contractor is hired who has employees, the business must verify that the contractor has workers’ compensation insurance for those employees. A business may verify insurance coverage by requesting a certificate of insurance from the contractor’s insurance company. Notification of any policy changes may also be requested of the insurer. If the contractor does not have workers’ compensation insurance for its employees throughout the duration of the work being done for the business, the business that hired the contractor can be held responsible for the workers’ compensation insurance for the contractor’s employees. If the business provides coverage for the contractor’s employees because the contractor failed to do so, the business can recover the cost of the premium from the contractor.
Value of Written Contracts Acc’d to Colorado
When a business intends to hire an independent contractor for a project, the parties may decide to write a contract. This helps to establish that the independent contractor adequately meets the two key principles of independent contracting identified in the section: What is an independent contractor? A contract should show the following factors appropriate to the parties’ circumstances.
- The business does not require the individual to work for it exclusively, period of time specified in the contract.
- The business does not establish a quality standard for the individual, how the work will be performed.
- The business does not pay a salary or an hourly rate but rather pays a fixed or contract rate.
- The business does not have the right to terminate the individual’s services or fails to produce a result that meets the specifications of the contract. The business does not provide more than minimal training for the individual. The business does not provide tools or benefits to the individual, except that materials and equipment may be supplied.
- The business does not dictate the time of performance, except that a ours may be established in the contract.
- The business does not pay the individual personally but rather makes checks payable to the trade or business name of the individual.
- The business and the individual do not combine business operations in any way; all business operations are maintained separate and distinct.
REMEMBER: A written contract may be helpful in proving independent contractor status. However, the facts of the work relationship are actually more important than what the contract says. Section 8-40-202(2), C.R.S. states requirements for disclosure and format for such contracts. Be sure you are familiar with this section of the law.