Hawaii Independent Contractor Agreement Template
Hawaii runs two opposite classification tests on the same worker and says so in the statute, which limits the reach of any single agreement.
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Introduction
An Independent Contractor Agreement is a contract between a business and a self-employed worker covering scope, payment, ownership of the work product, and how the engagement ends. Classification is settled by a legal test rather than by the title on the document, and Hawaii is unusually direct about the fact that it uses more than one. HRS 383-6 imposes a three-part test for unemployment insurance and applies it irrespective of whether the common law relationship of master and servant exists, but by its own words only for services subject to that chapter. Workers' compensation goes the other way. In Locations, Inc. v. Hawaii Department of Labor and Industrial Relations, 79 Haw. 208, 900 P.2d 784 (1995), the Hawaii Supreme Court explicitly held that the control test, and not the relative nature of the work test, is the proper test for that purpose. Wage and hour law is a third thing again: HRS 387-1 defines employ as to permit or suffer to work and sets out fourteen exclusions, without any independent contractor test at all. The consequence is concrete. The same worker can be an independent contractor for workers' compensation under the control test and still fail the three-part test for unemployment insurance, and the agreement can be drafted to support both analyses without deciding either one.
Key Things to Know
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For unemployment insurance, Hawaii presumes coverage and requires all three parts to be shown. Under HRS 383-6, services performed by an individual for wages or under any contract of hire are deemed employment subject to the chapter irrespective of whether the common law relationship of master and servant exists, unless and until it is shown to the satisfaction of the Department of Labor and Industrial Relations that the individual is free from control or direction over the performance of the service, both under the contract of hire and in fact; that the service is either outside the usual course of the business or performed outside all the places of business of the enterprise; and that the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the contract of service.
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Hawaii's middle part is written in the lenient form, and the difference matters. The statute is satisfied where the service is either outside the usual course of the business for which it is performed or performed outside of all the places of business of the enterprise. Those are alternatives, so a worker doing work central to the hiring business can still meet the requirement by performing it away from the business premises, which is not true in states whose middle prong has only the usual-course branch.
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HRS 383-6 decides only what it says it decides. The section makes services employment subject to this chapter, meaning the unemployment insurance chapter, so the three-part test does not travel to workers' compensation under chapter 386 or to wage and hour under chapter 387. A determination or an assumption reached under one chapter is not an answer under another.
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Workers' compensation runs on control, and only on control. The Hawaii Supreme Court in Locations, Inc. explicitly held that the control test, and not the relative nature of the work test, is the proper test to determine whether an employer-employee relationship exists for workers' compensation purposes, quoting the older formulation that a relationship exists when the person in whose behalf the work is done has the power, express or implied, to dictate the means and methods by which the work is to be accomplished. Chapter 386 defines employment broadly as any service performed for another under any contract of hire, express or implied, oral or written.
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A workers' compensation claim starts with a presumption in the worker's favor. HRS 386-85 provides that in the absence of substantial evidence to the contrary it is presumed that the claim is for a covered work injury, and the Hawaii Supreme Court has read that presumption as placing on the employer the burden of going forward with the evidence as well as the burden of persuasion. That is a claims presumption rather than a status rule, but it shapes how a contested classification is litigated.
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Hawaii forbids the structuring trick that other states tolerate. Chapter 386 excludes from employment service performed by an individual who owns at least fifty per cent of a corporation, by a member of a limited liability company holding a distributional interest of not less than fifty per cent, and by a partner of a partnership, but each of those exclusions carries the same proviso: no employer shall require an employee to incorporate, to form a limited liability company, or to become a partner or form a partnership as a condition of employment. Sole proprietors are separately outside the definition.
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The writing requirement in Hawaii law is narrow and sector specific rather than general. Chapter 386 excludes domestic, in-home, and community-based services for persons with developmental and intellectual disabilities under the Medicaid home and community-based services program where the individual's services are contracted by a recipient of social service payments and the individual voluntarily agrees in writing to be an independent contractor of that recipient. Outside that setting, no Hawaii act requires an independent contractor agreement to exist or prescribes what it must say.
Key decisions before you file
Before you file a Independent Contractor Agreement in Hawaii, a few decisions shape the document: which option to choose and what each one means. The Independent Contractor Agreement guide walks through them.
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Hawaii Requirements for Independent Contractor Agreement
Services performed by an individual for wages or under any contract of hire are deemed employment subject to the unemployment insurance chapter irrespective of whether the common law relationship of master and servant exists, unless and until it is shown to the satisfaction of the Department of Labor and Industrial Relations that the individual is free from control or direction under the contract of hire and in fact, that the service is either outside the usual course of the business or performed outside all the places of business of the enterprise, and that the individual is customarily engaged in an independently established trade of the same nature.
The middle requirement is satisfied where the service is either outside the usual course of the business for which the service is performed or performed outside of all the places of business of the enterprise for which the service is performed. Because the two branches are alternatives, work that is central to the hiring party's line of business can still satisfy the requirement when it is performed entirely away from that party's premises.
By its own terms HRS 383-6 makes services employment subject to this chapter, which is the unemployment insurance chapter. The three-part test therefore does not decide status under chapter 386 for workers' compensation or under chapter 387 for wage and hour purposes, and a favorable determination in one forum should not be relied on in another.
Chapter 386 defines employment as any service performed by an individual for another person under any contract of hire or apprenticeship, express or implied, oral or written. The Hawaii Supreme Court held explicitly that the control test, and not the relative nature of the work test, is the proper test for determining whether an employer-employee relationship exists for workers' compensation purposes, with the relationship established where the person for whom the work is done has the power, express or implied, to dictate the means and methods by which the work is accomplished.
In any proceeding for the enforcement of a claim for compensation it is presumed, in the absence of substantial evidence to the contrary, that the claim is for a covered work injury. The Hawaii Supreme Court has read that presumption as placing on the employer the burden of going forward with the evidence as well as the burden of persuasion, which shapes how a contested classification is defended even though the presumption addresses compensability.
The workers' compensation exclusions for an individual who owns at least fifty per cent of a corporation, for a member with a distributional interest of not less than fifty per cent in a limited liability company, and for a partner of a partnership each carry an express proviso that no employer shall require an employee to incorporate, to form a limited liability company, or to become a partner or form a partnership as a condition of employment. Service performed by a sole proprietor is separately outside the definition of employment.
Domestic, in-home, and community-based services for persons with developmental and intellectual disabilities under the Medicaid home and community-based services program are outside the definition of employment where the individual's services are contracted by a recipient of social service payments and the individual voluntarily agrees in writing to be an independent contractor of that recipient. The exclusion is conditioned on the existence and content of the signed writing and is limited to that setting.
Whenever an independent contractor undertakes to perform work for another person under a contract, express or implied, oral or written, the independent contractor is deemed the employer of all employees performing work in the execution of the contract, including employees of the independent contractor's subcontractors and their subcontractors. A hiring business should confirm that the contractor carries its own workers' compensation coverage before work begins.
Chapter 387 defines employ to include to permit or suffer to work and employee as any individual employed by an employer, followed by fourteen exclusions and no independent contractor test. Two exclusions carry most of the practical weight: an individual employed at a guaranteed compensation totaling $4,000 or more a month, and an individual whose minimum wage or maximum hours are prescribed by the federal Fair Labor Standards Act, subject to the proviso that the state rate applies where the federal rate would be lower for the workweek.
The Department of Labor and Industrial Relations tells employers in its guidance that before excluding workers as independent contractors they should contact the Employer Services Section and request a determination, and that failure to do so may result in an assessment of delinquent contributions, penalty, and interest from retroactive coverage. The determination is a practical safeguard for engagements that will run for any length of time.
Frequently Asked Questions
Hawaii applies genuinely different tests under different acts and is explicit about it. HRS 383-6 sets a three-part test for unemployment insurance and says it applies irrespective of whether the common law relationship of master and servant exists, but only to services subject to that chapter. Workers' compensation uses the common law control test the Hawaii Supreme Court adopted in Locations, Inc. So a single agreement supports two separate analyses, and a good outcome under one is not an answer under the other.
Three requirements, all of which must be shown to the satisfaction of the Department of Labor and Industrial Relations. The individual is and will continue to be free from control or direction over the performance of the service, both under the contract of hire and in fact. The service is either outside the usual course of the business for which it is performed or performed outside all the places of business of the enterprise. And the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the contract of service.
It is written with an alternative. The service qualifies if it is either outside the usual course of the hiring business or performed outside all the places of business of the enterprise. Many states that use a three-part test give only the first branch, which means work central to the hiring party's own operations fails automatically. In Hawaii, that same work can still satisfy the requirement when it is genuinely performed away from the business premises.
The control test. In Locations, Inc. v. Hawaii Department of Labor and Industrial Relations, 79 Haw. 208, 900 P.2d 784 (1995), the Hawaii Supreme Court explicitly held that the control test, and not the relative nature of the work test, is the proper test for determining whether an employer-employee relationship exists for workers' compensation purposes. Under it, the relationship exists where the person for whom the work is done has the power, express or implied, to dictate the means and methods by which the work is accomplished.
Yes, and that is the ordinary consequence of the structure. HRS 383-6 limits itself to services subject to the unemployment insurance chapter, so its three-part test does not govern workers' compensation. A worker who is genuinely free from day-to-day direction may satisfy the control test for workers' compensation while still failing the unemployment test because the service sits inside the hiring business's usual course and is performed at its premises.
Only in a narrow setting. Chapter 386 excludes certain Medicaid home and community-based services for persons with developmental and intellectual disabilities from employment, but only where the individual's services are contracted by a recipient of social service payments and the individual voluntarily agrees in writing to be an independent contractor of that recipient. That is a sector-specific condition, not a general rule, and no Hawaii act imposes a broad requirement that contractor engagements be papered a particular way.
No, not as a condition of the engagement. The workers' compensation exclusions for owners of at least fifty per cent of a corporation, for members holding a distributional interest of at least fifty per cent in a limited liability company, and for partners each carry the same proviso: no employer shall require an employee to incorporate, to form a limited liability company, or to become a partner or form a partnership as a condition of employment. Requiring the entity is evidence that the arrangement is employment being dressed up.
The Department of Labor and Industrial Relations recommends it. Its guidance for employers says that before excluding workers as independent contractors, employers should contact the Employer Services Section and request a determination, and that failure to do so may result in an assessment of delinquent contributions, penalty, and interest from retroactive coverage. Asking first is far cheaper than a retroactive coverage assessment.
Not directly. HRS 387-1 defines employ as to permit or suffer to work and employee as any individual employed by an employer, then lists exclusions rather than a classification test. Two of those exclusions do most of the practical work: an individual employed at a guaranteed compensation totaling $4,000 or more a month, and an individual whose minimum wage or maximum hours are prescribed by the federal Fair Labor Standards Act. Contract wording does not change either analysis.
Yes. Chapter 386 provides that where an independent contractor undertakes to perform work for another person under a contract, express or implied, oral or written, the independent contractor is deemed the employer of all employees performing work in the execution of the contract, including employees of the independent contractor's subcontractors and their subcontractors. Asking for a certificate of the contractor's own workers' compensation coverage before work starts is the practical response.