A new piece of Arizona legislation, the Declaration of Independent Business Status (DIBS) statute is designed to help employers achieve greater certainty when classifying workers as independent contractors rather than employees.
Determining whether a worker is an employee or an independent contractor can be difficult. There are no bright dividing lines. Instead, there are a number of distinct (but somewhat similar) tests, which may apply depending on the context, each of which includes a number of fact-specific factors that must be considered and weighed when trying to determine in which classification the worker rightly belongs. The requirement under the Affordable Care Act that businesses with 50 or more full-time employees must provide healthcare coverage to their full-time employees (but not independent contractors) significantly raises the stakes of properly classifying workers as employees or independent contractors.
DIBS became effective on August 6, 2016, and provides that if a worker executes a certain declaration, and if the employer “act[s] in a manner substantially consistent with the declaration,” there is a “rebuttable presumption” that the relation is one of independent contractor, not employee. Among other things, the workers must declare that they: (1) operate their own independent business; (2) are not employees and do not have a right to unemployment benefits; (3) are responsible for all tax liability for payments received from the employer; (4) are responsible for obtaining and maintaining all necessary registration and licenses; and (5) acknowledge that at least six of ten factors listed (which are among the factors typically used to determine independent contractor status) apply to them. [See A.R.S. § 23-1601(B).]
But DIBS probably is of only limited assistance to businesses in the context of the federal Affordable Care Act. DIBS itself states that it provides a means to prove the existence of an independent contractor relationship for the purposes of Arizona’s statutes, not federal statutes. Moreover, the regulations implementing the Affordable Care Act suggest that the determination of whether a worker is an employee or an independent contractor is governed by common law principles, not the statutes of an individual state. Thus, a worker’s declaration pursuant to DIBS is not likely to create a rebuttable presumption that the worker is an independent contractor for purposes of the Affordable Care Act. Instead, it probably will be only one of the many facts considered in the totality of circumstances when determining whether that worker must be counted and whether that worker is entitled to healthcare coverage under the Affordable Care Act.
Accordingly, businesses must be careful not to place too much reliance on a DIBS declaration in the Affordable Care Act context.
John J. Egbert is the chair of the Jennings, Strouss & Salmon, P.L.C. Labor and Employment Practice Group and a member of the firm’s management committee
