Arizona's Declaration of Independent Business Status 

Failure to classify your workers correctly can have significant tax and legal consequences for your business. Misclassifying an employee as an independent contractor – even inadvertently - can result in liability for unpaid wages, taxes, and other employment benefits.  In 2016, Arizona enacted a law called the Declaration of Independent Business Status (DIBS), codified in A.R.S. 23-1601 and 1602, allowing businesses to request that its workers declare themselves independent contractors in writing. The intent of the law is to give both businesses and their workers clarity regarding the nature of their relationship.

If your business utilizes independent contractors, it is recommended that they be made to sign a Declaration of Independent Business Status where applicable.  Although the signing of such a Declaration is optional, the execution of a Declaration of Independent Business Status, and substantial compliance therewith by both parties, creates a rebuttable presumption that the worker is an independent contractor, not an employee. 

In order to comply with the statute, the Declaration should be signed and dated by the contractor and provide as follows:

This declaration of independent business status is made by ________ (Contractor) in relation to services performed by the contractor for or in connection with _________ (Contracting Party).

The Contractor states and declares the following:

1.      That the Contractor operates the Contractor's own independent business and is providing services for or in connection with the Contracting Party as an independent contractor.
2.      That the Contractor is not an employee of the Contracting Party and the services rendered for or in connection with the Contracting Party do not establish any right to unemployment benefits or any other right arising from an employment relationship.
3.      That the Contractor is responsible for all tax liability associated with payments received from or through the Contracting Party and the Contracting Party will not withhold any taxes from payments to the Contractor.
4.      That the Contractor is responsible for obtaining and maintaining any required registrations, licenses or other authorization necessary for the services rendered by the Contractor.
5.      The Contractor acknowledges at least six of the following:

•   That the Contractor is not insured under the Contracting Party's health insurance coverage or workers' compensation insurance coverage;
•   That the Contracting Party does not restrict the Contractor's ability to perform services for or through other parties and the Contractor is authorized to accept work from and perform work for other businesses and individuals besides the Contracting Party;
•   That the Contractor has the right to accept or decline requests for services by or through the Contracting Party;
•   That the Contracting Party expects that the Contractor provides services for other parties;
•   That the Contractor is not economically dependent on the services performed for or in connection with the Contracting Party;
•   That the Contracting Party does not dictate the performance, methods or process the Contractor uses to perform services;
•   That the Contracting Party has the right to impose quality standards or a deadline for completion of services performed, or both, but the Contractor is authorized to determine the days worked and the time period of work;
•   That the Contractor will be paid by or through the Contracting Party based on the work the Contractor is contracted to perform and that the Contracting Party is not providing the Contractor with a regular salary or any minimum, regular payment;
•   Pays the independent contractor in the name appearing on the written agreement.
•   Will not terminate the independent contractor before the expiration of the contract period, unless the independent contractor breaches the contract or violates the laws of this state.
•   That the Contractor is responsible for providing and maintaining all tools and equipment required to perform the services performed; and
•   That the Contractor is responsible for all expenses incurred by the Contractor in performing the services.

6.        The Contractor acknowledges that the terms set forth in this Declaration apply to the Contractor, the Contractor's employees, and the Contractor's independent contractors.

As discussed above, the execution of a DIBS is not required to prove the existence of an independent contractor relationship.  The statute specifically provides that the failure to execute such a Declaration does not create a presumption of employment and is not admissible to deny the existence of an Independent Contractor relationship. Nevertheless, doing so helps to clarify the parties' relationship and demonstrate their intent that it is one of an independent-contractor.

Importantly, however, it is not enough to merely secure a signed DIBS from the contractor.  To create the rebuttable presumption, the employing unit must also act in a manner substantially consistent with its terms.  Thus, utilization of a DIBS can not only serve as a useful guide for assessing the relationship between an employing unit and its workers, but provide a roadmap for compliance as well. 

Additional Considerations

Note: The DIBS statute does not apply to contractors licensed by the Arizona Registrar of Contractors, unless they are contracting with an independent contractor for services that do not require a contractors' license.

DIBS is also a matter of state law only, and can be used, for example, to defend against liability for misclassification arising from a claim for unpaid wages or unemployment benefits filed by a contractor under state law.  It does not have any presumptive effect with regard to the federal independent-contractor tests utilized by the National Labor Relations Board (NLRB), US Dept. of Labor, or Internal Revenue Service (IRS).