Effective August 6, 2016, recently enacted HB 2114 establishes new Chapter 10 of Arizona Revised Statutes Title 23 (Labor) to permit an employing unit and contractor to create a rebuttable presumption of an independent contractor relationship by executing a signed written agreement known as a Declaration of Independent Business Status ("Declaration"). (Chapter 231.)

The law stipulates that the execution of the Declaration is optional for the contractor and not required to create an independent contractor relationship. The absence the Declaration does not mean the worker is presumed to be employee.

The Declaration must be signed and dated by the contractor and state that the contractor acknowledges that:

(a) The contractor operates an independent business and is providing services for the contracting party as an independent contractor;

(b) The contractor is not an employee of the contracting party and services rendered do not establish any right to unemployment benefits or other right arising from an employment relationship;

(c)  The contractor is responsible for all tax liability associated with payments received from the contracting party and the contracting party will not withhold any taxes from payments to the contractor;

(d) The contractor is responsible for obtaining and maintaining any required registration, licenses or other authorization for services rendered; and

(e) That the terms set forth in the Declaration apply to the contractor, the contractor's employees and the contractor's independent contractors.

The Declaration must state the following 10 factors and the contractor must acknowledge at least six of the 10 factors apply:

(1) That the contractor is not insured under the contracting party's health insurance coverage or workers' compensation insurance coverage;

(2) That the contracting party does not restrict the contractor's ability to accept and perform services for other parties;

(3) That the contractor has the right to accept or decline requests for services by the contracting party;

(4) That the contracting party expects that the contractor provides services for other parties;

(5) That the contractor is not economically dependent on the services performed or in connection with the contracting party;

(6) That the contracting party does not dictate the performance, methods or process the contractor uses to perform services;

(7) That the contracting party has the right to impose quality standards and completion deadlines but the contractor may determine the days worked, time of work and other performance aspects;

(8) That the contractor will be paid by the contracting party based on the work established in the contract and that the contracting party is not providing the contractor with a regular salary or any minimum, regular payment;

(9) That the contractor is responsible for providing and maintaining all tools and equipment associated with services performed; and

(10) That the contractor is responsible for all expenses incurred in performing services.

Further, the contractor must act in a manner that is substantially consistent with the terms of the Declaration.

Another new independent contractor law applies specifically for services provided for digital platforms

Effective August 6, 2016, another recently enacted bill, HB 2652, provides that a qualified marketplace contractor performing services for a qualified marketplace platform will be treated as an independent contractor if the conditions under the new law are met, including the execution of a written contract containing specific language as provided for in the law. (Chapter 210.)

A "qualified marketplace contractor" is defined as any person or organization that enters into an agreement with a qualified marketplace platform to use the platform's digital platform to provide services to third-parties seeking those services. Exceptions apply under the law.

A "qualified marketplace platform" is defined as an organization that operates a digital website or digital smartphone application that facilitates the provision of services by qualified marketplace contractors to others and accepts service requests from the public only through its digital website or digital smartphone application. Exceptions apply under the law.

Ernst & Young LLP insights

This law is relevant only for Arizona purposes, and does not alter the standards applied by the IRS, the US Department of Labor or other state and local jurisdictions. For more insights into worker classification, see our special report.

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