Who Is an Independent Contractor in Nevada?
In the simplest terms, an independent contractor is someone who is in a position of self-employment. This means that generally speaking, a company has hired a contractor and expects them to complete a job according to a specific deadline, but is not responsible for how the job gets done, as long as it meets the specifications they require.
As an example… if you hire a mechanic to rebuild your car engine, you will have the mechanic complete the work according to a set time frame, but you will not hover over them as they fix the engine. You will also not provide the mechanic with the tools they need, nor will you decide if they should use John Deer Motor Oil because you swear by the brand. Once the job is done, you will pay the mechanic and they will move on to their next job. This entirely holds true for contractors in any industry, including refreshment services, but it should be known that all employees in Nevada are presumed to be employees until proven otherwise. The key aspects that differentiate an employee from a contractor include:
The Independent Contractor vs Employee Test The distinction between a contractor and an employee in Nevada is based on the following six-part test , which was outlined in the following landmark Nevada Supreme Court case:
• Is there a stated time period for the task to be completed?
• Does the contractor need to be supplied with the tools necessary to perform their job?
• Does the contractor get paid according to a set salary or at an hourly rate?
• Who determines how the contractor goes about doing their job?
• Are there any requirements for the employee to do a certain job away from the physical location?
• Can the contractor hire additional help to complete the job?
If you know your business is going to be using independent contractors, it’s in your best interest to immediately have an attorney review your practices until you’re familiar with all the rules and regulations governing independent contractors in Nevada. There are a slew of different tests that can determine if your contractors are in fact employees, whether determining minimum wage compliance, overtime regulations, or general employee benefits that have to be provided under the law.
What Nevada Laws Cover Independent Contractors
In addition to case law interpretations, the Nevada Revised Statutes (NRS) and Nevada Administrative Code (NAC) also provide guidance on independent contractors. In many cases, company personnel can take action (formally or informally) to reduce liability under these laws; in other cases, involvement by outside experts may be prudent to minimize exposure. Regardless, the laws are strict, and organizations can have trouble with enforcement on many levels. For these reasons and others, legal counsel is often key to ensuring compliance with NRS and NAC requirements on independent contractors.
The predominant law governing independent contractors in Nevada is NRS 608.015, which establishes four multi-part tests to determine whether an individual is an independent contractor, none of which is particularly favorable to employers in Nevada. The risk of reclassification and imposition of taxes and back wages makes it critical for companies to review each independent contractor role they have to make sure they are non-employers.
The IRS has a similar test, which has been adopted in some circumstances by the Nevada state tax commission. The Nevada Department of Employment, Training and Rehabilitation also provides an overview of tests for independent contractors on its website.
The Wage Payment Collection Act also governs the payment and timing of final wages to independent contractors who meet the "independent contractor" standard under NRS 608.015. Most significantly, the law categorically prohibits treating independent contractors as exempt from overtime under the Wage and Hour Act, a perspective that no longer seems questionable. Therefore, when engaged to provide services as a nonemployee, it is vital to ensure proper classification to minimize FLSA exposure.
Statutory Tests for Independent Contractors
The ABC test is the most stringent test and is used in states like California. Nevada does not use the ABC test. Instead, the Nevada Department of Business and Industry has offered its own guidelines for determining whether a person is an employee or independent contractor. According to the Nevada Department of Business and Industry, the critical factors in determining whether a worker is an employee or independent contractor are:
Does the employer have the right to control the details and means by which the services are performed?
If you don’t exercise this right, it is evidence of an independent contractor relationship.
Do you set your own schedule to perform the contracted services?
Being allowed to set your own schedule is consistent with an independent contractor relationship.
Do you decide the place of work?
You may be deemed an independent contractor if you work where you choose.
Are you responsible for obtaining your own business licenses and permits as needed to perform work?
If you’re required to obtain your own business licenses and permits, you’re more likely an independent contractor.
Can you hire your own employees or subcontractors to help you with the work to be performed?
If you can hire your own employees or subcontractors, you’re likely an independent contractor and not an employee.
Have you made your own investments in your business, such as buying equipment, renting a place of work, or materials necessary to produce your product or provide your services?
If you have made your own investments, it is evidence of an independent contractor relationship.
Do you have an obligation to make a profit or loss.
If you would incur a loss in the course of doing business, for example, you had to buy additional materials, it is likely that you are an independent contractor.
Is your work part of the regular business of the employer?
It is an indication of an employee-employer relationship if your services are a regular part of the regular business of the alleged employer.
As mentioned, even if the Nevada Department of Business and Industry asserts that you are an independent contractor, this will not prevent the IRS or other IRS agencies from redefining you as an employee. In Nevada, there is a presumption that a person rendering services for another is an employee. To meet this presumption, the employer should be distinctly lacking directional control if they want to classify an individual as an independent contractor. The lack of direction needs to go beyond just providing an individual with a series of tasks without a specific detail of how to perform those tasks.
Independent Contractor Rights and Responsibilities
The rights and obligations of independent contractors in Nevada are generally determined by the terms of their contract, as there are few statutory protections for independent contractors. The Freed and Weigel Law Firm frequently negotiates and vets contracts for independent contractors. Many of these contracts allow independent contractors the freedom to work on their own schedule, with some guidance, and to do what is in their own best interest. Depending on the field, these additional rights may be granted.
Independent contractors have the following tax and business obligations:
- Taxes: Independent contractors are usually taxed at a higher rate than employees. Employers may have withheld state and federal taxes from employees and also may have paid payroll taxes on their behalf, but independent contractors pay all their own taxes. For Nevada contractors, this is very important. Depending on the nature of your business, you may find that your business license fee is quite high as compared to the taxes withheld for your employees—you may be better off hiring workers as independent contractors.
- Business Expenses: With many employees, the employer will cover business travel, office supplies, printing, or other business expenses. Independent contractors generally are not able to deduct those costs from their income, and sometimes, even the costs associated with their business ties into independent contractors are not deductible, such as health insurance or professional memberships.
- Insurance: Independent contractors are expected to "carry their own weight" in terms of ensuring that their business is insured. This means that they may be responsible for paying for things like liability insurance, property insurance, commercial auto insurance, and health insurance. Often, additional insurance is needed according to their business type, such as errors and omissions or malpractice insurance. Employers are responsible for ensuring that employees are covered under a basic insurance package, but independent contractors must cover themselves through their own means.
Pros and Cons of Being an Independent Contractor
Benefits of Working as an Independent Contractor
The appeal of being an Independent Contractor is easy to see—particularly in the world of Nevada contracting. Nevada Independent Contractors have generally been able to charge more than employees receive for the same work. They have the ability to work for a variety of companies rather than being stuck in a single place, and are able to set their own hours. All of these are attractive benefits of independent contractor work.
Autonomy, flexibility, and the opportunity to create your own schedule are vital to many workers, providing a distinct draw to the field of Independent Contractor work. This is also one of the reasons so many companies in Nevada have been eager to classify their workers as Independent Contractors—having independent contractors on the job means more project based work and fewer long-term expenses .
Risks of Working as an Independent Contractor
The advantages may tempt you to agree to be classified as an Independent Contractor, but there are risks involved with agreeing to be classified as such. Legally, an Independent Contractor has little compensation for lost wages if their work is improperly terminated by the hiring company.
A worker who has been misclassified as an Independent Contractor withholds a range of benefits—these could include unemployment compensation, workers compensation, participation in an employer’s medical plan, and even sometimes payment of minimum wage or overtime.
Many companies in Nevada have gone to great lengths to ensure that their workers are classified as Independent Contractors, including misclassification of an employee who fulfills a similar function to other employees of the company. For any worker who believes that they have been misclassified, it is important to look at your legal options. An attorney can help you make more informed decisions about what steps you should take.
Contractor Disputes and Remedies
Independent contractors in Nevada may encounter a variety of different disputes, ranging from disagreements with clients about the quality or scope of services performed, to disputes with the Internal Revenue Service regarding classification as an employee or an independent contractor. Other disputes such as a vendor’s failure to deliver supplies or equipment, are also common.
Resolution of these disputes requires an understanding of Nevada contract law and how Nevada classifies workers as employees or independent contractors. Knowledge of the Nevada Independent Contractor Agreement Statute is also critical in order to determine if the Nevada Labor Commissioner will have jurisdiction to hear a complaint regarding an independent contractor issue. That statute provides that the Nevada Labor Commissioner has jurisdiction over disputes between hiring entities and independent contractors if both (i) an independent contractor registration certificate has been filed with the obudsman, and (ii) the basis of the dispute between the parties involves a Nevada Independent Contractor Agreement.
Even when the Nevada Independent Contractor Agreement requirements are met, the Nevada Labor Commissioner may decline to hear a dispute. For example, if the parties to an independent contractor agreement have filed the agreement with the obudsman, and the independent contractor files his or her complaint with the Nevada Labor Commissioner, but the hiring entity files a complaint regarding the same dispute with the obudsman, rather than the Nevada Labor Commissioner, the obudsman will maintain jurisdiction, and the Nevada Labor Commissioner will dismiss the claim and direct the parties to the obudsman process. In addition, not all claims are wellegable before the Nevada Labor Commissioner. For instance, claims for punitive damages are not allowable.
Even when there is no contractual relationship between a hiring entity and an independent contractor, the Nevada Labor Commissioner may have jurisdiction over certain work-related disputes. In such situations, a contractor or hiring entity may be obligated to bring the claim before the Nevada Labor Commissioner rather than in Civil Court. For instance, although there may be no independent contractor agreement, the Nevada Labor Commissioner does have jurisdiction for wage claims against a hiring entity.
Becoming an Independent Contractor from an Employee
The transition from employee to independent contractor in Nevada is not difficult, but it does require planning. Many individuals call an attorney and indicate they cannot find anything about the transition of an employee to independent contractor and want a law that specifies such a transition. Unfortunately, we do not have such a law that authorizes any schedule for the transition or any form documents.
If an individual is going to transition, it is important to consider some basic issues:
- Has the individual engaged in any kind of non-compete with the employer?
- Has the individual revealed any of the employer’s confidential information or trade secrets to any third parties or otherwise used the confidential information or trade secrets outside the scope of the individual’s employment duties?
- Did the individual indicate he/she would work for the company for a particular period of time?
- Did the employer purchase any equipment or material that cannot be easily resold or returned to the employer?
- Is the individual a key employee?
- Does the employee have a contract that provides for renewal on the anniversary date?
- Does the employer use automatic renewals for all of its employees?
- Were there continuing assurances and invitations to return to work at the end of an engagement?
- Has the individual violated any of his/her duties to the employer including the duty of loyalty, accountability, good faith, etc.?
- Is there any breach of trust by the individual?
There are many other issues that will arise when negotiating a change from employee to independent contractor. One of the current issues evolving in directives from the IRS is the question of employee misclassification. The IRS is critical of independent contractors and is expanding its definition of who is considered to be an independent contractor as opposed to an employee.
An individual will need to be prepared for the inevitable discussion with the employer and demonstrate the individual will be fully compliant with the IRS, the state of Nevada, and the controlling case law. The individual must essentially demonstrate to the employer that the individual has an independent business and therefore should be classified as an independent contractor.
The Road Ahead for Independent Contracting
As the gig economy grows, so too do independent contractor disputes in our state and nationwide. On an almost daily basis we see another major company either taking a position against independent contractors or experiencing a class action due to misclassification. In an attempt to ensure compliance, major employers have conducted massive independent contractor audits in an effort to self-correct their classification and avoid misclassification lawsuits. Staying in compliance is no easy task for employers in the gig economy. For instance, general contractor requirements vary not only by industry but by state and municipality. Legislative debates concerning the rights and benefits of independent contractors have raged for decades, and especially since California passed ABC Test bills in 2018. From a business perspective, some state legislatures have implemented laws to accommodate the gig economy, such as allowing for flexible work hours and other requirements on small business owners . However, many other states have not followed suit. For instance, the Nevada legislative session kicked off on February 3, 2023. Previously, the Governor created an Advisory Council in November 2022 that was designed to take on the gig economy in the State. While there are many different measures currently being debated and introduced in the Nevada legislature this session concerning independent contractors, including an ABC Test for commercial motor vehicle drivers. Further, stakeholders currently lobbying for legislation include the Nevada Vehicle Dealer Association, and the Nevada Trucking Association. As of the date of this publication none of the proposed bills have been adopted. However, it is clear that the Nevada Legislature is taking the gig economy head on and employers should seek legal counsel to stay informed throughout the legislative process.