Washington compliance action plans for on-demand teams

For US business owners and LLC founders utilizing on-demand teams in Washington, understanding and adhering to state and local compliance regulations is crucial to avoid misclassification risks, penalties, and potential lawsuits.

This guide outlines key findings and provides an actionable compliance plan. Key findings include: 1) Worker classification is fact-specific and governed by Washington tests (L&I and ESD), meaning a 1099 alone is insufficient, and workers are presumed 'covered workers' for workers' compensation unless specific tests are met. 2) Most individuals providing 'personal labor' are covered by workers' compensation unless they meet independent-contractor tests (Part A/Part B tests in L&I guide), with potential employer liability for misclassification.

For US business owners and LLC founders utilizing on-demand teams in Washington, understanding and adhering to state and local compliance regulations is crucial to avoid misclassification risks, penalties, and potential lawsuits.

This guide outlines key findings and provides an actionable compliance plan. Key findings include: 1) Worker classification is fact-specific and governed by Washington tests (L&I and ESD), meaning a 1099 alone is insufficient, and workers are presumed 'covered workers' for workers' compensation unless specific tests are met. 2) Most individuals providing 'personal labor' are covered by workers' compensation unless they meet independent-contractor tests (Part A/Part B tests in L&I guide), with potential employer liability for misclassification.

Unemployment tax and ESD reporting are generally required for employees, and ESD offers a worker-status questionnaire to help confirm classification.

Washington's Paid Family & Medical Leave (PFML) is a state benefit requiring employer and covered worker participation based on ESD/Paid Leave guidance. 5) Statewide paid sick leave and other wage-and-hour obligations apply to employees, while city-level rules like Seattle's ICP Ordinance impose additional requirements for independent contractors (e.g., pre-work written notice, itemized payment info, timely payment, anti-retaliation).

Independent contractors aiming to pass Washington tests are expected to have an active Department of Revenue account, UBI, and appropriate registrations, which businesses should verify.

Misclassification risks are significant, including back taxes, penalties, interest, audits, unpaid workers' compensation liabilities, and potential lawsuits, making proactive compliance essential. An actionable compliance action plan for on-demand teams in Washington involves several phases

Phase 1 — Audit and classify: Inventory all on-demand/gig workers, record services, locations, and compensation. Run L&I 'independent contractor' tests and the ESD worker-status questionnaire for each worker/role, documenting results and retaining supporting evidence. For Seattle-based work, check ICP coverage thresholds and prepare required notices. Phase 2 — Remediate classification risks: If a worker is likely an employee, set up payroll, withhold taxes, register with L&I for workers' comp, ESD for unemployment, enroll in PFML, and comply with wage-and-hour laws. If a worker qualifies as an independent contractor, require and verify evidence of business status (UBI/DOR account, separate books, invoices), include contractual language confirming business status and responsibility for taxes/insurance, and obtain a W-9. Ensure subcontractors with employees are registered with L&I and current on premiums. Phase 3 — Contracts, notices, and operational controls: Use written contracts or pre-work written notices specifying scope, pay, schedule, expenses, and confirming independent-contractor status. In Seattle, provide ICP pre-work written notice and itemized payment statements. Include indemnities, insurance requirements (CGL, professional liability, workers' comp if applicable), confidentiality, IP assignment, and termination terms. Limit direction/control for independent contractors and maintain proof of autonomy. Phase 4 — Taxes, reporting, and insurance administration: Verify DOR/UBI status for contractors. Maintain payroll systems for employees, file quarterly wage reports with ESD, and remit state/federal payroll taxes. Register and pay L&I workers' compensation premiums for covered workers. Enroll and remit PFML contributions. Phase 5 — Documentation, monitoring and dispute plan: Keep a centralized compliance file per worker. Implement periodic audits of classification and documentation. Establish procedures for agency inquiries, audits, and worker complaints. Seek expert help if audit risk is significant, agency inquiries arise, or if many gig workers operate in multiple jurisdictions. Consult employment counsel and a CPA experienced in WA state rules. Utilize agency phone lines for informal determinations (L&I Determinations 360-902-6868; ESD Employer Status/Tax Account Management Center 855-829-9243) as interim steps.