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PENNSYLVANIA
It is axiomatic that unemployment compensation taxes, which generate funds to pay unemployment benefits, apply only to compensation paid to "employees." Since independent contractors are not employees of those for whom they perform services, their compensation would not be included in the service-recipient's unemployment tax base. In Danielle Viktor, Ltd. v. Department of Labor and Industry, 892 A.2d 781 (Pa., 2006), aff'g Pa. Commw. Ct., No. 1906 C.D. 2003, 6/8/04, 2004 WL 2598999, the Pennsylvania Supreme Court has now had the final say in a long-running battle between the state's Department of Labor and Industry and a group of limousine companies as to whether their limo drivers are employees or independent contractors for unemployment compensation tax purposes.
Under Pennsylvania's unemployment compensation tax statute, generally, "[s]ervices performed by an individual for wages shall be deemed to be employment subject to this [tax]." The statute also provides an exception for independent contractor status, which carries two requirements. First the individual must be "free from control or direction over the performance of such services both under his contract of service and in fact." Second, the individual must be "engaged in an independently established trade, occupation, profession or business." The court noted repeatedly that there was no dispute regarding the first requirement; the Department had found that the limo drivers were free from such control and direction when providing their driving services. The issue in the case was whether the drivers satisfied the second statutory criteria, operating an independent trade or business.
The work arrangement. While the court's decision involved consolidated appeals relating to six different limousine companies, the material facts governing the relationship between each limousine company and its drivers were essentially identical. In each instance, the drivers lacked a proprietary interest...