In August 2016, the Arizona legislature implemented a new statute governing the relationship between independent contractors and the entities with which they contract. Here are four key questions raised by the new law, known as the Declaration of Independent Business Status law (DIBS), codified at A.R.S. § 23-1601, with corresponding answers:
1. How can Arizona companies prove the existence of an independent contractor relationship under the new law?
DIBS allows Arizona companies to prove the existence of an independent contractor relationship by: (a) obtaining a declaration of independent business status from the independent contractor that complies with DIBS; and (b) acting in a manner substantially consistent with the declaration. A signed declaration creates a rebuttable presumption of independent contractor status.
2. What must be included in the declaration?
To comply with DIBS, the declaration signed by the independent contractor must substantially comply with the sample language provided in the statute, which includes acknowledging that the contractor:
- Is an independent contractor, not an employee;
- Is not entitled to unemployment benefits or any other right arising from an employment relationship;
- Is responsible for all tax liability associated with payments received from or through the contracting party; and
- Is responsible for maintaining any required registration, licenses or other authorization necessary to perform the services rendered.
The contractor must also affirm at least six of the following criteria:
- The contractor is not insured under the contracting party’s health insurance coverage or workers’ compensation insurance coverage.
- The contracting party does not restrict the contractor’s ability to perform services for or through other parties.
- The contractor has the right to accept or decline requests for services by or through the contracting party.
- The contracting party expects that the contractor provides services for other parties.
- The contractor is not economically dependent on the services performed for the contracting party.
- The contracting party does not dictate the performance, methods or process the contractor uses to perform services.
- The contracting party has the right to impose quality standards or a deadline for completion of services performed, or both, but the contractor is authorized to determine the days worked and the time periods of work.
- The contractor will be paid by or through the contracting party based on the work the contractor is contracted to perform and the contracting party is not providing the contractor with a regular salary or any minimum, regular payment.
- The contractor is responsible for providing and maintaining all tools and equipment required to perform the services performed.
- The contractor is responsible for all expenses incurred by the contractor in performing the services.
In addition, the independent contractor must acknowledge that the terms set forth in the declaration apply to the contractor’s employees and independent contractors.
3. Is a declaration required to establish independent contractor status?
No. Obtaining a declaration is discretionary; the statute expressly states that the execution of a declaration is not mandatory in order to establish the existence of an independent contractor relationship. Further, the failure of a party to execute a declaration does not create any presumptions and is not admissible to deny the existence of an independent contractor relationship.
4. Can the independent contractor status still be challenged if a declaration is obtained?
Yes. The statute expressly states that the law does not affect any investigatory or enforcement authority related to the determination of the independent contractor or employment status of any relationship as provided by Arizona’s labor statute or federal law.
This is a state statute and does not affect the well-developed federal law that determines whether one is an employee or independent contractor, as well as the IRS code and regulations that speak to this issue.