You asked for a description of the difference between independent contractors and employees for unemployment insurance (UI) tax purposes. You particularly wanted to know whether (1) massage therapists working out of a massage center owned by someone else can be considered independent contractors thus removing the center from any duty to pay UI taxes on those therapists and (2) clients directly paying therapists, rather than paying the center, would have a bearing on UI taxes or workers' compensation insurance premiums.

The Office of Legislative Research is not authorized to provide legal opinions and this report should not be construed as one.

SUMMARY

The UI statute sets up three criteria to determine whether a particular working arrangement makes someone an independent contractor or an employee. If the state Department of Labor (DOL) determines that a person is an independent contractor, the business or person receiving the contractor's services is not responsible for paying UI taxes on the contractor. If the therapists are considered employees under the UI law, the employer is liable to pay UI tax and workers' compensation insurance premiums based on their employment.

Having massage therapists work out of a massage center does not appear to meet the independent contractor standard. This is due in part because independent contractors must be "free from control and direction" by the host entity while performing their service, and in this situation the therapists must abide by rules set by the massage center. Having clients directly pay the therapists, rather than pay the center (which in turn pays the therapists), does not appear to make the therapists independent contractors.

TEST FOR INDEPENDENT CONTRACTORS

The unemployment compensation law contains a three-part test
for determining when a person is an independent contractor. The individual must meet all three parts (CGS § 31-222(a)(1)(B)).

The test is:

1. the individual has been and will continue to be free from control and direction related to the performance of his service, both under his contract for the service and in fact;

2. the service is performed either outside the usual course of an enterprise's business or outside of all of an enterprise's places of business; and

3. the individual performing the service is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as the service performed.

In the massage center situation, therapists must abide by certain rules (such as maintaining client visit records) and behavior (such as wearing appropriate attire). The therapists also operate within the course of the center's usual business and within the center itself. It appears the massage center example does not meet the first or second criterion.

Having clients pay therapists directly only changes one aspect of the arrangement and may still keep the therapists under the "control and direction" of the center for the reasons mentioned above. Therefore, changing which party the clients pay does not appear to substantially affect the determination of whether the therapists are independent contractors.

The DOL web site provides an employer's handbook on unemployment compensation questions (http: //www. ctdol. state. ct. us/uitax/employer-guide. htm).

JM: eh