Worker Classification: Who Is and Isn't an "Employee" Protected by Labor Standards Laws?
Division of Labor Standards and Statistics
707 17th Street, Denver, CO 80202 | 303-318-8441
www.ColoradoLaborLaw.gov | www.LeyesLaboralesDeColorado.gov
Interpretive Notice & Formal Opinion ("INFO") #10:
Worker Classification: Who Is and Isn't an "Employee" Protected by Labor Standards Laws?
Overview
- What labor rights a worker has depends on what kind of worker they are.
- Most paid workers are "employees" with various labor rights — to minimum and overtime wages, rest and meal breaks, paid leave, limits on pay deductions, and more.
- Other paid workers are "independent contractors" with a more limited set of rights related to their work.
- Other workers are unpaid — which is allowed for situations that aren't really about providing labor to an employer, such as most bona fide volunteers for nonprofits or educational internships/externships.
- To determine whether a worker is an employee, one must apply the Colorado Wage Act ("CWA") "employee" definition (C.R.S. § 8-4-101(5) or "§ 101(5)")[^1] and examine the totality of the circumstances of the working relationship. The actual facts of the work determine whether a worker is an "employee" — not just whether they're called a "contractor" (or other kind of non-employee) in tax papers (W-2, 1099, etc.) or in an agreement.[^2]
- If the Division determines that an employer has willfully misclassified an employee as a non-employee, such as an independent contractor, the employer may be liable for fines payable to the Division: $5,000 for a first violation, which increases to $10,000 if the violation is not remedied within 60 days; and $25,000 for a second or subsequent willful violation within five years, which increases to $50,000 if not remedied within 60 days.[^3]
How to Determine When a Worker Called an "Independent Contractor" Is Actually an "Employee"
- A common question is whether a worker actually is an "employee" covered by labor law, even though the hiring business called them an "independent contractor" — sometimes in a written agreement, sometimes verbally — and recorded their pay with tax form 1099 for contractor pay, not W-2 for employee pay.
- In evaluating the totality of circumstances regarding the relationship between an employer and worker, the CWA "employee" definition identifies which facts matter and in what order to examine them.
- Per C.R.S. § 8-4-101(5), key considerations include the degree of control the employer has over the worker; the degree to which the worker performs the primary work of the employer; and whether the worker was customarily engaged in an independent trade or business performing similar work.
| Text of the CWA § 101(5) "Employee" Definition [bracketed letters/numbers added, to show the 3 parts] | How to Apply Each Part of the Two-Sentence Definition |
|---|---|
| [1] "Employee" means any person ... [A] performing labor or services [B] for the benefit of an employer. ... | The first sentence of § 101(5) – and the core definition: Anyone whose labor or services benefit an employer is an employee. |
| [2] Relevant factors ... include the [A] degree of control the employer may or does exercise over the person and the [B] degree to which the ... work ... is the primary work of the employer; | The first half of the second sentence – noting factors for applying the core definition of whether activity is or isn't "labor or services," or to "benefit ... an employer": To what degree is the activity controlled by, or the primary work of, an employer? |
| [3] except that an individual [A] primarily free from control and direction ... and ... [B] customarily engaged in an independent trade, occupation, profession, or business ... is not an employee. | The second half of the second sentence – an exception: Even if applying [1]-[2] shows a worker meets the core definition of an "employee," the worker is not an employee if they are actually doing independent work, with little to no control by those hiring them. |
Applying the Basic Definition
- First, determine whether the worker "perform[ed] labor or services for the benefit of an employer":
- [A] "labor or services" typically isn't in question since contractors are hired for labor or services,[^4] so
- [B] "benefit of an employer" is the key question, informed by any relevant facts, including the two (degree of "control" and what the business's "primary work" is) that the statute, § 101(5), notes may be relevant to whether labor or services benefit an employer. Any business benefits from labor or services it pays for, but the question is what kind of benefit, and who draws the primary economic benefit:
- Did the business benefit from the labor or services more:
a) as an employer does — commonly with meaningful control, or for its primary work? -or-
b) as a customer does — commonly with limited control, or for tasks other than its primary work? - Did the economic benefit of the work go primarily:
a) to the business — in the manner that an employer benefits from the work of its employees, not just in the manner that a customer benefits from the services it pays for? -or-
b) to the worker — in the manner that a business benefits from paying customers, not just in the manner that an employee benefits from receiving wages?
- Did the business benefit from the labor or services more:
Analyzing Control
- The key question is whether a business had limited control like a typical knowledgeable customer (choosing end products, deadlines, limited quality control, etc.), or greater control like an employer has.
- Look at how much authority a business had to control a worker, not just how much it used its authority. For example, authority to discipline is relevant, even if discipline was never needed.
- Consider all relevant facts; no one fact alone determines the outcome. It typically helps to consider the degree that a business did, or had authority to:[^5]
1. instruct when, where, and how much to work — rather than just general timing or deadlines;
2. direct or train how to perform work — rather than just explain goals or desired end products, relying on the worker's own skill or ongoing learning;
3. supervise and monitor the work, including productivity, time, location, etc. — rather than just limited observation of progress, or for quality control;
4. enforce policies or standards — rather than just require lawful activity, respect for property, etc.;
5. retain opportunity for profit or loss (such as by setting prices customers pay, paying by time, or retaining the investment in the project) — rather than the worker having that opportunity (such as by receiving flat rate pay regardless of time, or investing their own funds);
6. hold out workers as representing the business — whether verbally, by requiring uniforms, etc. — rather than workers having websites, business cards, etc., with their own personal or trade name;
7. retain decision-making on changes in plans — rather than let the worker independently, for example, decide on and execute changes to the planned work (e.g., changing the materials to be used), or directly receive and respond to any feedback from the business's customers;
8. discipline the worker, or terminate at-will — rather than having the limited remedies of a contracting party, such as to terminate only for breaches by the worker.[^6]
Analyzing Primary Work
- Consider all relevant facts; no one fact alone determines the outcome. It typically helps to consider:
1. how the business defines its work — including how it presents itself to the public;
2. to what degree the work is important to the business;
3. to what degree the work occurs regularly or only occasionally; and
4. to what degree the work is a source of revenue. - The question is "the degree to which" a worker performs a business's primary work, not just a simple yes or no. For example:
- (A) A worker who doesn't directly generate goods, services, or sales, but does work necessary to support the revenue-generating work of the business, still "performs work that is the primary work" of the business to a high degree.[^7]
- (B) A worker whose work doesn't fit into (A) above, but is necessary to the broader operation of the business — for example, daily janitorial work necessary for a business's building to be a functioning worksite — "performs work that is the primary work" of the business to a limited degree.
- (C) A worker whose work is useful but not necessary to operating the business — for example, a cafeteria that a business offers to employees who have other meal options (bringing their own food, eating off-site, etc.) — does not perform the primary work of the business.
Analyzing the Exception
- If the facts show the worker "performed labor or services for the benefit of an employer," commonly based on analyzing the "control" and "primary work" factors, then the worker is an "employee" unless the business proves both requirements of the exception — that the worker was:
- [A] "primarily free from control and direction" — typically under the same facts as the "control" analysis above; and
- [B] "customarily engaged in an independent trade, occupation, profession, or business"[^8] — typically looking to the degree to which a worker is
- actually "engaged in ... independent" work for others, not working primarily for one employer,[^9] and
- in work that is a "trade, occupation, profession, or business" — rather than, for example, labor not requiring as much training or learning.[^10]
Example: Is Pat an Employee of the Factory, an Employee of the Staffing Firm, or an Independent Contractor?
Example: Is Pat, an electrician working on-site on production machines at a factory, an:
(a) employee of the service recipient, the hat-making factory Hats Are Terrific, Inc. ("HAT")?
(b) employee of the service provider they work for, Machinery/Appliance Technicians, Inc. ("MAT")?
(c) independent contractor not employed by any other business?[^11]
| In these 3 scenarios, is Pat an: | a) Employee of HAT? | b) Employee of MAT? | c) Independent contractor? | Explanation |
|---|---|---|---|---|
| (1) MAT hires Pat, then assigns and supervises Pat's work at HAT. HAT hires and pays MAT for the work; MAT informs HAT when each work task is done. | No | Yes | No | MAT draws the primary economic benefit from Pat's work, which it controls and is the primary work (electrical services) of its business. HAT benefits more as an employer of Pat than as a customer of Pat. |
| (2) MAT hires Pat to work at HAT several days a week, and: HAT, not MAT, assigns Pat's work: machine maintenance on all days Pat is on-site; plus — as needed, on a less regular basis — both machine repairs and setup of new machines. Once Pat started at HAT, MAT interacts with Pat and HAT only in monthly check-in phone calls. | Yes | No | No | HAT's degree of control is relatively high, despite one limit: Pat is retained for expert skills, so HAT's direction and evaluation don't include specific details of how to do the work. Pat performs HAT's primary work to a relatively high degree: not just sporadic expert setup/repair work, but also maintenance that is regularly needed for, and assures the functioning of, the core production equipment. MAT serves more as a mere placement agency than employer, finding labor for HAT without retaining any meaningful control over that labor. |
| (3) MAT isn't involved: Pat serves several businesses directly. HAT doesn't use Pat for regular machine maintenance, which HAT staff do since that work is relatively less specialized than the sporadic expert repairs and machine setup HAT uses Pat for. On average Pat is on-site roughly ⅕ of work days: 2-4 setup/repair jobs a month of ½-2 days each. | No | [not applicable] | Yes | Pat's independent business draws the primary economic benefit — while HAT benefits more as a customer of Pat than as an employer of Pat: Machine/repair setup is more specialized than regular maintenance HAT does itself (indicating a low degree of control), and is needed only sporadically (indicating a low degree to which Pat performs HAT's primary work). Even if the degree of primary work is higher, the exception is satisfied: Pat is both in an independent trade and primarily free of control. |
For More Information: Visit the Division website, call 303-318-8441, or email [email protected].
[^1]: The § 101(5) definition applies to a number of Colorado statutes and rules under those statutes, including: (1) the various statutes authorizing Division wage and hour enforcement and interpretation, including the Industrial Relations Act, Wage Act, and Minimum Wage Act (C.R.S. Title 8, Articles 1, 4, 6); (2) paid sick leave under the Healthy Families and Workplaces Act (Title 8, Article 13.3, Part 4); (3) rights under the Protected Health/Safety Expression and Whistleblowing Law (Title 8, Article 14.4); and (4) given the pervasive adoption and application of the § 101(5) definition across much of Colorado labor law, presumptively any other labor standards statutes or rules that do not specify a different definition. Other areas of law use similar but not identical definitions, including unemployment insurance, workers' compensation, taxes, and Denver wage ordinances. For details, consult the relevant agency or a professional advisor.
[^2]: Colo. Custom Maid, LLC v. Indus. Claim Appeals Office, 441 P.3d 1005, 1007 (Colo. 2019) ("employee" status depends on "the realities" of the work "relationship," not just what parties wrote or said); Diamond Circle Corp. v. Blocher, 691 P.2d 769, 770 (Colo. App. 1984) (internal citations omitted) ("[W]e are primarily concerned with what is done under the [employment] contract and not with what the contract says."); C.R.S. § 8-4-121 (voiding any agreement, written or oral, that waives or modifies applicable wage rights).
[^3]: C.R.S. § 8-4-113(1)(a)(I.5), amended by Colorado House Bill 25-1001 (effective Aug. 6, 2025).
[^4]: Whether activity is "labor or services" may be an issue in situations other than employee/contractor, such as a student intern claiming their activity was actually the kind of "labor or services" that employees do for their employer's benefit.
[^5]: The numbering of this list doesn't imply a rank-ordering of importance, that all factors are equally relevant in all cases, or that this list is exhaustive in terms of what factors should be considered in any given employment situation.
[^6]: See Colo. Custom Maid, 441 P.3d at 1009 ("simply the right to terminate a service contract without liability is an important factor in ... whether the individual is free of control and direction" of an employer, since the right to discharge "immediately involves the right of control"); Indus. Comm'n of Colo. v. Bonfils, 241 P. 735, 736 (Colo. 1925) (applying unemployment statute) ("By virtue of its power to discharge, the company could, at any moment, direct the minutest detail and method of the work").
[^7]: An example: iina Research, DLSS Claim No. 4191-20, Hearing Decis. No. 21-106 (Oct. 7, 2021) (though not directly revenue-generating production work, farm manager/chief operating officer performed work that was a critical component of the business process by managing farm operations, making such work a part of the farm's "primary work").
[^8]: See Colo. Custom Maid, 441 P.3d at 1009-10 ("Stripped of legal jargon," the second condition of the exception "asks whether the worker is an independent contractor with his or her own business that provides the particular services.").
[^9]: Of course, working for more than one business doesn't automatically show the worker is "engaged in ... independent" work as a contractor is. A worker can have two or more "employee" jobs for different employers — for example, two part-time jobs, or a full-time job plus moonlighting in a part-time job. Or a worker can have one "employee" job plus separate independent contractor work — for example, a full-time construction worker taking handyman jobs on weekends.
[^10]: Other important considerations include whether the individual "engaged in a trade, occupation, profession, or business that existed separate and apart from any relationship with a particular employer and that would survive the termination of that relationship; and whether the individual "by reason of his skill, engaged in his own economic enterprise such that he bore the risk of his own unemployment." Long View Sys. Corp. USA v. Indus. Claim Appeals Off. of Colo., 197 P.3d 295, 300 (Colo. App. 2008) (internal citations omitted).
[^11]: The example does not consider whether, with different facts, HAT and MAT could both be employers of Pat. See Salinas v. Commercial Interiors, Inc., 848 F.3d 125 (4th Cir. 2017) ("joint employer" test used in federal and Colorado wage law).
INFOs are not binding law, but are the officially approved Division opinions and notices on how it applies and interprets various statutes and rules. The Division continues to update and post new INFOs; email [email protected] with any suggestions. To be sure to reference up-to-date INFOs, rules, or other material, visit ColoradoLaborLaw.gov. Last updated Aug. 11, 2025