Employee or Independent Contractor – Do You Know the Difference? Rhode Island Cracks Down on Companies That Misclassify Their Workers

A special legislative commission in Rhode Island has been investigating different occupations, such as real estate and appraisal, which rely heavily on independent contractors to make sure that they are in compliance with federal and state laws.  The commission has approved legislation which would require independent contractors to pay a filing fee of $100 per year.  The General Assembly is still considering this legislation.

It’s not enough just to call a worker an “independent contractor”.  Companies and individuals must comply with certain filing requirements.  Click here for more information:

For a list of independent contractors in Rhode Island who have registered with the Department of Labor and Training, click here: http://www.dlt.ri.gov/wc/icmain.htm  If you can check this list, so can the government.  Rhode Island’s budget woes are widely known.  The state will be happy to fine you if you’re not in compliance with these requirements.

What’s the difference between an employee and an independent contractor?

Employees in Rhode Island are entitled to workers’ compensation protection, unemployment compensation, hourly wages and overtime or salaries. Employees across the country are also subject to income tax withholding from their compensation.

Independent contractors set their own hours, are issued 1099’s and pay their own taxes.  They are not eligible for unemployment and other compensation that an employee can receive.

How does the government decide who is an employee or independent contractor? 

All workers in Rhode Island are legally considered to be employees unless they meet the following requirements:

• they are paid solely by commissions “directly related to sales or other output” not to the number of hours worked.
• have signed an independent contractor agreement; and
• signed and filed an “Designation of Status as an Independent Contractor Form DWC-11-IC” with the RI Department of Labor and Training.  

The IRS imposes additional requirements. Consult the “Independent Contractor or Employee?” brochure from the IRS.  This form is available in the Transit Forms Library under “Other Forms and Documents”.  It is also available from the Internal Revenue Service http://www.irs.gov/ .

What are the penalties for non-compliance? 

The real estate company or principal broker that  wrongly classifies as worker as an independent contractor is subject to felony and maximum criminal penalty of 2 years in prison and a fine of $10,000 or both, under RI workers’ compensation laws. If a worker is injured on the job but no workers’ compensation has been paid to the state, the company could be liable for the worker’s medical bills and other expenses. The state imposed a record penalty against the owners of the Station Night Club after the tragic fire because they misclassified their workers as independent contractors.   A company could also be required to pay back wages to employees, and back taxes, interest, and additional penalties to the IRS.

Officers of a corporation and managers and managing members of an LLC can be held personally liable for both criminal and civil penalties

Where can I find an independent contractor agreement?

A RIAR Independent Contractor Agreement and Termination Rider are available in the Transit Forms Library under “Other Forms and Documents”.    If a company uses its own version of these forms, make sure to consult with your own attorney to make sure that the forms are in compliance with state and federal law.

Where can I find a Designation of Status as Independent Contractor Form (DWC-11-IC)?

This form is available in the Transit Forms Library under “Other Forms and Documents”.  It is also available from the RI Department of Labor and Training.  http://www.dlt.state.ri.us/

Is a salesperson or associate broker legally required to sign an independent contractor agreement or DWC-11-IC every year?

No.   A salesperson/associate broker who wishes to be classified as an independent contractor needs to file a DWC-11-IC only once as long he/she is affiliated with the same real estate company.   The same is true for an independent contractor agreement.  Some real estate companies may choose to ask their salespeople/associate brokers to sign a new agreement every years although it is not required by state law.

What happens when a salesperson/associate broker changes companies?

ANSWER:  When an salesperson/associate broker changes to a new company, he/she must file a Notice of Withdrawal of Designation as Independent Contractor Pursuant to R.I.G.L. §28-29-17.1.  Also, a salesperson/associate broker would sign a independent contractor agreement with his/her new office.

Questions?  Contact the RIAR Legal Department at 401-785-3650 ext. 5 or email monica@riliving.com.