Key Takeaways

  • Wisconsin uses a strict nine-part test for worker classification under workers’ compensation laws.
  • Even a signed agreement doesn't override misclassification if actual working conditions reflect employee status.
  • Written independent contractor agreements in Wisconsin should outline payment, responsibilities, liability, and termination terms.
  • Real estate professionals, in particular, must ensure clarity around brokerage control and licensing.
  • Proper documentation protects both parties and ensures compliance with Wisconsin labor laws.

A Wisconsin independent contractor agreement is a contract made between an employer conducting business in the state of Wisconsin and an independent worker who is not an employee of the company.

It's important for the worker as well as the company to know whether they are classified as an employee or an independent contractor. Many businesses hire independent contractors instead of standard W-2 employees for a variety of reasons, and the rights and responsibilities of both parties differ under the two different relationships.

Businesses are generally not liable for workplace injury or tax payments for independent contractors. Businesses hiring independent contractors also need not worry about issues like unemployment insurance taxes, compensation premiums, and tax withholdings.

As a business, you may find it tempting to use the services of independent contractors instead of regular employees. However, you don't get to choose how to classify your employees; it must be done correctly according to certain rules and regulations.

Why Proper Classification Is Important

Proper classification is critical for determining a worker's eligibility for pension, compensation, overtime wages, and several other matters.

Employers are responsible for properly classifying their workers. Incorrectly classifying your workforce can make you liable to pay additional taxes and penalties in the state of Wisconsin. Moreover, a stop work order may be issued against employers in the construction business.

Even if a worker has signed an independent contractor agreement, the employer cannot use the agreement to escape their liability. The state of Wisconsin uses a list of factors to decide whether a certain worker is an employee or an independent contractor.

According to a recent clarification issued by the Department of Labor, most of the workers under the Fair Labor Standards Act (FLSA) are employees. The classification must be done based upon the nature of the relationship, and employers found guilty of misclassification can face stiff penalties.

In certain situations, it may become difficult to differentiate between an employee and an independent contractor. Moreover, different rules apply to government agencies, nonprofits, and trucking or logging businesses.

Legal Risks of Misclassification in Wisconsin

Misclassifying an employee as an independent contractor in Wisconsin can result in significant legal and financial consequences. If an individual is wrongly categorized, the employer may face:

  • Liability for unpaid employment taxes
  • Retroactive payments for overtime and minimum wage violations
  • Penalties from the Department of Workforce Development (DWD)
  • Workers' compensation back pay and fines
  • Loss of business licensure for certain regulated industries

Moreover, employers cannot rely solely on a contract label to avoid these obligations. Wisconsin courts and agencies will look at the actual working relationship rather than the language used in the agreement.

Strict Nine-Point Test for Wisconsin Independent Contractors

Although federal law may govern in some situations, most often, classification can be done based upon state law, especially in the areas of workers' compensation, unemployment tax liability, and wage and hour requirements.

For the purpose of workers' compensation, the state of Wisconsin determines a worker's status using a strict nine-point test. In order to be classified as an independent contractor and hence be exempt from compensation coverage, a worker must meet all the nine conditions listed below:

  • The worker must operate a separate business.
  • The worker must have a Federal Employer Identification Number (FEIN) or must have filed a business tax return with the IRS in the previous year.
  • The worker must operate under a specific contract.
  • The worker must be responsible for operating expenses.
  • The worker must be accountable for performance of the work.
  • The worker must be paid on the basis of contract, job, bid, or commission.
  • The worker must be subject to profit or loss from performing the work.
  • The worker must have recurring business obligations.
  • The worker's position must be such that he either succeeds or fails if his business expenses exceed his income.

According to the Wisconsin Supreme Court's ruling, an individual who fails to meet any of these nine requirements is not an independent contractor.

Key Clauses in a Wisconsin Independent Contractor Agreement

A well-drafted independent contractor agreement in Wisconsin helps reduce legal ambiguity and provides a clear outline of each party’s obligations. Common clauses include:

  • Scope of Work: A detailed description of services the contractor will provide.
  • Payment Terms: Whether compensation is fixed, hourly, or per project, and when it will be disbursed.
  • Term and Termination: Duration of the contract and how either party can end the relationship.
  • Tax Responsibility: Statement that the contractor is responsible for their own tax filings.
  • Equipment and Expenses: Who provides materials and covers costs incurred.
  • Confidentiality and Non-Disclosure: Protects proprietary business information.
  • Non-Compete or Non-Solicitation: Optional clauses limiting post-contract competition, where enforceable.
  • Liability and Insurance: Whether the contractor must carry liability insurance or indemnify the client.

Although templates exist online, contracts should be tailored to the specific services and compliance needs of Wisconsin law.

Being an Independent Contractor vs. Being an Employee

An independent contractor has more freedom in choosing how to complete his work. However, on the flip side, the company will not pay his taxes or cover him under the employees' health insurance policy. However, he can contribute to the unemployment and workers compensation funds and use those benefits.

An employee is under the control of his employer, but he gets to have certain benefits like workers' compensation, health insurance, and unemployment benefits.

A contractor may not have certain legal rights given to an employee. For instance, most of the federal laws for preventing discrimination in the workplace do not cover contractors. Similarly, unlike an employee, a contractor is not entitled to receive overtime wages and minimum hourly wages.

An employer deducts the payroll taxes while paying wages to an employee, but the payment made to a contractor is not subject to such deduction. Contractors whose earnings exceed a certain amount are liable to pay self-employment tax.

For these reasons, it is important to know whether or not you or your employees are being properly classified.

When to Use a Wisconsin Independent Contractor Agreement

A Wisconsin independent contractor agreement should be used when hiring a person or business to perform services on a non-employee basis. Common situations include:

  • Hiring freelance creatives or consultants
  • Engaging tradespeople or subcontractors for specific projects
  • Commissioning software developers or IT professionals
  • Partnering with licensed professionals on a per-project basis

This type of contract is especially important for short-term, task-specific work arrangements. It helps define expectations and protect both parties in the event of disputes.

Special Considerations for Real Estate Professionals

Wisconsin real estate professionals operating as independent contractors are subject to unique rules. While many brokerages engage agents as independent contractors, these arrangements can be scrutinized for potential misclassification.

Key factors the Wisconsin Department of Revenue and Department of Workforce Development consider include:

  • Whether the brokerage dictates the agent’s work schedule or methods
  • Whether the agent works exclusively for one broker
  • If licensing requirements and commission structures support true independence

Brokerages must ensure agreements with agents clearly define the independent nature of the relationship and avoid exercising excessive control that implies an employer-employee dynamic.

Frequently Asked Questions

  1. Is a written agreement required to classify someone as an independent contractor in Wisconsin?
    While not legally required, a written agreement is highly recommended. However, classification depends on actual working conditions, not just what's written.
  2. Can a contractor receive benefits like unemployment or workers’ compensation?
    Not typically. Contractors are usually ineligible for such benefits unless they voluntarily contribute to private plans.
  3. What makes someone an independent contractor under Wisconsin law?
    Wisconsin uses a nine-part test for workers’ compensation and a separate six-part test for unemployment purposes. A contractor must meet all factors to be properly classified.
  4. Do independent contractor agreements need to be notarized in Wisconsin?
    No, notarization isn’t required but having a signed, dated copy for each party is essential for enforcement.
  5. Can I convert an employee to an independent contractor?
    Only if the worker meets Wisconsin's legal criteria for independent contractor status. Simply changing their title or contract does not suffice.

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