Worker Classification in Wisconsin: The Gig is Up

The “Gig” Dilemma in the Badger State

In Wisconsin, providing a worker with a 1099 form and a flexible schedule does not automatically make them an independent contractor. State regulators, particularly the Department of Workforce Development (DWD), look past labels to the economic reality of the relationship. For gig economy platforms and businesses utilizing on-demand labor, the stakes are high.

Price Tag of Intentional Misclassification

Under Wisconsin’s Unemployment Insurance law, the penalties for misclassifying “gig workers” or other staff vary depending on the employer’s intent. However, the costs for “knowing and intentional” misclassification are steep:

• Standard Penalties: Pursuant to Wis. Stat. § 108.221, employers may face a penalty of $500 per misclassified employee, capped at $7,500 per incident.
• Repeat Offenders: If a business has been previously penalized and continues the practice, the fine doubles to $1,000 per misclassified employee, with a maximum fine of $25,000 per violation.
• False Information: Under Wis. Stat. § 108.24, providing false information to misclassify employees carries a fine of $1,000 per employee (up to $25,000 per violation) and may be referred to the Department of Justice or a district attorney for criminal prosecution.

The Broad Enforcement Powers of the DWD

The Wisconsin Department of Workforce Development (DWD) does more than just issue fines. Under Wis. Stat. § 103.06, the DWD is authorized to:

1. Investigate complaints of misclassification.
2. Issue stop-work orders, effectively halting business operations.
3. Impose forfeitures that do not preclude further civil or criminal proceedings.

The “Control” Factor: Insights from Case Law

Wisconsin courts have long provided clarity on where the line is drawn. In the foundational case Swedowski v. Westgor, the court emphasized that the principal factor distinguishing an employee from a contractor is the degree of control retained by the employer over the details of the work. 14 Wis. 2d 47, 54, 109 N.W.2d 549, 553 (1961). In the seminal case of Jahns v. Milwaukee Mut. Ins. Co., 37 Wis. 2d 524, the Wisconsin Supreme Court diminished the importance of a written agreement and focused on whether the dairy delivery men were provided with equipment or uniforms or were otherwise required to take certain routes from the dairy suppliers. These considerations were tangible factors objectively measured through the testimony of witnesses and examination of records.

Specifically, in the gig economy, the use of the “algorithm” comes into play—a less tangible measure which requires technical proficiency to understand. In practice, businesses increasingly rely on computer programming that determines the “how,” “when,” and “where” of a worker’s tasks—including setting rigid routes, mandatory uniforms, or strictly controlled pricing. While the worker may not understand the control being asserted by the company when using this tool and may believe themselves to be an independent contractor—the court is likely to view that worker as an employee, regardless of any signed “Independent Contractor Agreement.”

Summary for Employers

Wisconsin imposes significant, multi-layered penalties for intentional misclassification, particularly in high-growth gig sectors like delivery, transportation, and home services. To avoid these statutory fines, stop-work orders, and potential criminal referrals, it is vital to ensure that every worker classified as a 1099 contractor truly meets the “control” standards established by the courts and the nine-part test established by the legislature.