Technical Update vol. 30 no. 30 - Independent Contractor Compliance

Properly classifying workers as employees or independent contractors is essential for counties. Recent guidance from the U.S. Department of Labor (DOL) and Colorado law reinforces the importance of carefully evaluating each working relationship and applying the stricter of the federal or state standards.

Misclassifying a worker can result in unpaid overtime, back taxes, workers' compensation premiums, unemployment insurance liabilities, and other penalties. Recent enforcement actions illustrate the risk, including a $532,000 back-wage recovery and a $7.2 million judgment against employers that improperly classified workers as independent contractors. Although the federal rule remains under review, Colorado's requirements will generally govern for counties.

UNDERSTANDING THE CURRENT STANDARD

Under Colorado law, workers are presumed to be employees unless the county demonstrates both of the following:

• The worker is free from the county's control and direction under the contract and in practice.
• The worker is customarily engaged in an independent trade, occupation, profession, or business related to the work performed.

An independent contractor designation alone is not enough. The day-to-day working relationship must also support the classification.

INDEPENDENT CONTRACTOR BEST PRACTICES

Before hiring an independent contractor, counties should ensure the relationship meets legal requirements. Generally, the more control a county has over how work is performed, the more likely the worker is an employee.

Best practices include:

• Pay a fixed contract amount, not an hourly wage or salary.
• Allow the contractor to control how the work is completed.
• Do not require exclusive work for the county.
• Limit supervision, training, and employee benefits.
• Provide only necessary materials or equipment.
• Set project deadlines rather than daily schedules.
• Keep county and contractor business operations separate.

WHAT SHOULD BE INCLUDED IN A CONTRACTOR AGREEMENT?

A written agreement is an important first step, but it must accurately reflect how the relationship operates in practice.

Independent contractor agreements should clearly:

• Describe the project or services being provided.
• Establish a fixed contract rate.
• State that the contractor controls how the work is performed.
• Specify that the contractor is responsible for federal and state taxes.
• Include the required Colorado disclosure regarding unemployment insurance.
• Define the circumstances under which the agreement may be terminated.

A compliant written agreement may help shift the burden of proof under Colorado law, but it does not guarantee that a worker will ultimately be classified as an independent contractor if the day-to-day relationship reflects otherwise.

WHAT THIS MEANS FOR COUNTIES

Worker classification should be reviewed before services begin—not after a concern or claim arises. Counties should regularly evaluate independent contractor relationships, review contract language, and ensure work practices align with Colorado and federal requirements. Proper classification helps reduce wage claims, tax penalties, workers' compensation costs, unemployment liability, and claim exposure. For CWCP Members, it also supports workers' compensation compliance. CTSI will continue monitoring federal developments and provide updates as regulations evolve. For questions, please contact CTSI at 303.861.0507.