Michigan Independent Contractor Agreement Template
Michigan is one of the few states to write the IRS 20-factor test into its statutes by name, and it applies a different standard to wages than it does to unemployment and workers' compensation.
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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. Whether the worker is genuinely a contractor is decided by a legal test, not by the title on the document, and Michigan is unusual in naming the test in its statutes. MCL 421.42(5) provides that services are employment if performed by an individual the agency determines to be in an employer-employee relationship using the 20-factor test announced by the internal revenue service of the United States department of treasury in revenue ruling 87-41, 1987-1 C.B. 296. The workers' compensation act carries the same overlay at MCL 418.161(1)(n), administered by the Michigan Administrative Hearing System, and stacks a bespoke three-element exclusion on top of it. The wage acts do neither. MCL 408.932 and MCL 408.471 define employee circularly and leave the line to the courts, which decide employment status under the judge-made economic reality test. What Michigan does not do is require a document. MCL 421.42(1) defines employment to include service performed under any contract of hire, written or oral, express or implied, so the absence of a written agreement neither creates nor defeats employment. A Michigan agreement is worth drafting because it records the facts the factors ask about, not because a statute compels it.
Key Things to Know
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Michigan writes the federal 20-factor test into its unemployment statute by name. MCL 421.42(5) provides that on and after January 1, 2013, services are employment if performed by an individual the agency determines to be in an employer-employee relationship using the 20-factor test announced by the internal revenue service in revenue ruling 87-41, 1987-1 C.B. 296. The state unemployment agency groups the factors into behavioral control, financial control, and relationship of the parties, and states that there is no magic or set number of factors that makes the worker an employee or an independent contractor, and no one factor stands alone.
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The same subsection carries a burden-shifting trigger that is easy to overlook. Under MCL 421.42(5), an individual from whom an employer is required to withhold federal income tax is prima facie considered to perform services in employment under the act. The workers' compensation act has a parallel sentence at MCL 418.161(1)(n) using the phrase for whom. Where withholding is already happening, the hiring business starts on the back foot.
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Workers' compensation stacks two tests, and the first is conjunctive and phrased in the negative. MCL 418.161(1)(n) makes a person an employee if, performing service in the course of the trade, business, profession, or occupation of an employer, that person does not maintain a separate business, does not hold himself or herself out to and render service to the public, and is not an employer subject to the act. Because all three must be defeated, a worker who has formed an LLC but does not actually market services to the public is still an employee. On top of that sits the same Revenue Ruling 87-41 overlay, applied by the Michigan Administrative Hearing System.
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The wage acts run on a different standard entirely. The Improved Workforce Opportunity Wage Act defines employ as to engage, suffer, or permit to work and employee as an individual employed by an employer, and the Payment of Wages and Fringe Benefits Act is thinner still. Neither supplies a classification test. Michigan courts fill that gap with the economic reality test, set out by the Michigan Supreme Court in Askew v. Macomber, 398 Mich. 212 (1976), and restated in Clark v. United Technologies Automotive, Inc., 459 Mich. 681 (1999), both decided under the workers' compensation act. It weighs control of a worker's duties, the payment of wages, the right to hire, fire, and discipline, and whether the duties are an integral part of the employer's business, assigning primacy to no single one.
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No Michigan statute requires a written independent contractor agreement, prescribes contract terms, or mandates a notice to contractors. MCL 421.42(1) defines employment to include service performed for remuneration or under any contract of hire, written or oral, express or implied, so the writing changes nothing by itself. The one written-document reference in the workers' compensation act is permissive and points the other way: MCL 418.171(4) says a principal may demand that the contractor enter into a written agreement to reimburse the principal for losses, which is an indemnity option, not a contractor agreement mandate.
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A written agreement still carries evidentiary weight under the relationship-of-the-parties grouping, and Michigan offers a way to get certainty in advance. MCL 418.161(1)(n) provides that if a business entity asks the Michigan Administrative Hearing System to determine whether one or more individuals performing service for it in the state are in covered employment, the hearing system shall issue a determination covering those individuals and any others performing similar services under similar circumstances.
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Hiring a contractor who has employees creates separate exposure. MCL 418.171(1) makes a covered principal liable to pay compensation to any person employed in the execution of the work where the contractor is not subject to the act or is not carrying coverage. MCL 418.171(4) penalizes principals who willfully act to circumvent the section by using coercion, intimidation, deceit, or other means to encourage persons who would otherwise be considered employees to pose as contractors. Coverage attaches under MCL 418.115 to private employers who regularly employ three or more employees at one time, and to smaller employers where at least one employee has worked 35 or more hours per week for 13 weeks or longer in the preceding 52 weeks.
Key decisions before you file
Before you file a Independent Contractor Agreement in Michigan, 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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Michigan Requirements for Independent Contractor Agreement
On and after January 1, 2013, services are employment if performed by an individual the agency determines to be in an employer-employee relationship using the 20-factor test announced by the internal revenue service of the United States department of treasury in revenue ruling 87-41, 1987-1 C.B. 296. The state unemployment agency organizes those factors as behavioral control, financial control, and relationship of the parties, and states that no single factor is controlling. Draft the agreement to those groupings.
An individual from whom an employer is required to withhold federal income tax is prima facie considered to perform services in employment under the unemployment act, and the workers' compensation act carries a parallel sentence using the phrase for whom. A business that has been withholding, or that withholds for some workers in the same role, should expect the burden of explaining the difference.
Every person performing service in the course of the trade, business, profession, or occupation of an employer is an employee if that person does not maintain a separate business, does not hold himself or herself out to and render service to the public, and is not an employer subject to the act. All three must be cleared for contractor status, and the same Revenue Ruling 87-41 overlay applies on top, administered by the Michigan Administrative Hearing System.
If a business entity requests the Michigan Administrative Hearing System to determine whether one or more individuals performing service for the entity in the state are in covered employment, the hearing system shall issue a determination of coverage of service performed by those individuals and any other individuals performing similar services under similar circumstances. This is the practical route to certainty for a business engaging a class of similar contractors.
The Improved Workforce Opportunity Wage Act defines employ as to engage, suffer, or permit to work and employee as an individual employed by an employer, and the Payment of Wages and Fringe Benefits Act defines employ as to engage or permit to work and employee as an individual employed by an employer. Neither supplies a classification standard, so employment status is decided under the economic reality test of Askew v. Macomber, 398 Mich. 212 (1976) and Clark v. United Technologies Automotive, Inc., 459 Mich. 681 (1999).
Employment includes service performed for remuneration or under any contract of hire, written or oral, express or implied, so a missing writing neither creates nor defeats employment. The only written-document reference located in the workers' compensation act is MCL 418.171(4), which provides that a principal may demand that the contractor enter into a written agreement to reimburse the principal for losses. That is an indemnity option for the principal, not a mandated contractor agreement.
Where a covered principal contracts with a contractor who is not subject to the act or is not carrying coverage, the principal is liable to pay to any person employed in the execution of the work the compensation the principal would have owed had that person been immediately employed by the principal. Collect a current certificate of insurance from any contractor who brings its own workers onto the job.
Principals willfully acting to circumvent the statutory employer provisions by using coercion, intimidation, deceit, or other means to encourage persons who would otherwise be considered employees to pose as contractors are liable under the act's penalty provisions. Presenting an independent contractor agreement as a condition of continued work for someone already functioning as an employee is exactly the conduct this addresses.
The act applies to all private employers, other than agricultural employers, who regularly employ three or more employees at one time, and to private employers who regularly employ fewer than three if at least one has been regularly employed by that same employer for 35 or more hours per week for 13 weeks or longer during the preceding 52 weeks. Misclassified workers can push a business over these thresholds retroactively.
Frequently Asked Questions
Michigan names the test in the statute. MCL 421.42(5) provides that services are employment if performed by an individual the agency determines to be in an employer-employee relationship using the 20-factor test announced by the internal revenue service in revenue ruling 87-41, 1987-1 C.B. 296, and MCL 418.161(1)(n) carries the same overlay for workers' compensation. That means a Michigan agreement should be drafted to the 20 factors, grouped as behavioral control, financial control, and relationship of the parties, rather than to a generic control recital.
No. No Michigan statute requires one, prescribes its terms, or mandates a notice to contractors, and MCL 421.42(1) defines employment to include service performed for remuneration or under any contract of hire, written or oral, express or implied. The only written-document reference in the workers' compensation act is permissive: MCL 418.171(4) provides that a principal may demand that the contractor enter into a written agreement to reimburse the principal for losses, which is an indemnity option rather than a classification requirement.
No. Unemployment insurance runs on the Revenue Ruling 87-41 factors under MCL 421.42(5), workers' compensation on the three-element exclusion plus the same factors under MCL 418.161(1)(n), and the wage acts on the judge-made economic reality test. Bills that would introduce an ABC standard have been introduced in recent legislative sessions, but none has been enacted, so the factors described here are the operative law.
MCL 418.161(1)(n) makes a person performing service in the course of the trade, business, profession, or occupation of an employer an employee if that person does not maintain a separate business, does not hold himself or herself out to and render service to the public, and is not an employer subject to the act. The elements are conjunctive and framed in the negative, so contractor status requires clearing all three. Forming an entity is not enough on its own if the worker never actually markets services to the public.
No. The Improved Workforce Opportunity Wage Act defines employ as to engage, suffer, or permit to work and employee as an individual employed by an employer, and the Payment of Wages and Fringe Benefits Act is thinner still. Neither contains a classification test, so Michigan courts apply the economic reality test from Askew v. Macomber, 398 Mich. 212 (1976), restated in Clark v. United Technologies Automotive, Inc., 459 Mich. 681 (1999). Both were workers' compensation cases, so the wage application is a use of that general Michigan doctrine rather than a wage-act holding.
Askew lists control of a worker's duties, the payment of wages, the right to hire and fire and the right to discipline, and the performance of the duties as an integral part of the employer's business toward the accomplishment of a common goal. The court was explicit that there is no ultimate test under the theory and that the elements are viewed as a whole, assigning primacy to no single one. Clark added that anything other than a totality of the circumstances test would be an insufficient guide.
For workers' compensation, yes. MCL 418.161(1)(n) provides that if a business entity requests the Michigan Administrative Hearing System to determine whether one or more individuals performing service for the entity in the state are in covered employment, the hearing system shall issue a determination of coverage for those individuals and any other individuals performing similar services under similar circumstances. That is useful where a business engages a class of similar contractors.
You can be. MCL 418.171(1) provides that where a covered principal contracts with a contractor who is not subject to the act or is not carrying coverage, the principal is liable to pay compensation to any person employed in the execution of the work as if that person had been immediately employed by the principal. MCL 418.171(4) adds penalties for principals who willfully act to circumvent the section by using coercion, intimidation, deceit, or other means to encourage persons who would otherwise be employees to pose as contractors.
No. The state unemployment agency treats a written contract as one input under the relationship of the parties grouping, noting that the nature of the relationship may be evidenced by the existence of a written contract, and adds that no one factor stands alone. The value of a careful Michigan agreement is that it aligns the paper record with how the work will actually be done, which is what the factors examine. Attorney review is an option where the engagement is large or ongoing.
MCL 418.115 applies the act to all private employers, other than agricultural employers, who regularly employ three or more employees at one time, and to private employers who regularly employ fewer than three if at least one has been regularly employed by that same employer for 35 or more hours per week for 13 weeks or longer during the preceding 52 weeks. Whether a worker counts toward those thresholds is itself a classification question under MCL 418.161(1)(n).