Keith Mack
A common-law spouse is eligible to apply for health insurance coverage, provided the state of residence recognizes common-law marriage. However, a common-law employee cannot be a spouse or the business owner. According to the IRS, a common-law employee is someone who performs work for an organization that has control over what work is done and how it is done. This is a traditional employer-employee relationship, and the designation applies to both full- and part-time employees. The distinction between a common-law employee and an independent contractor is important for health insurance and tax purposes.
| Characteristics | Values |
|---|---|
| Definition | A common-law employee is someone who performs work for an organization that has control over what work is done and how it’s done. |
| Nature of work | Common-law employees have a more structured work schedule and the employer has a say in how their work is executed. |
| Relationship with employer | Common-law employees have a traditional employer-employee relationship. |
| Work status | Common-law employees can be full-time or part-time workers. |
| Benefits | Common-law employees are eligible for benefits such as health insurance, group-term life insurance, and prizes or bonuses. |
| Taxation | Employers are responsible for withholding common-law employees' federal income taxes and Federal Insurance Contributions Act (FICA) taxes. |
| Discrimination | Discrimination against common-law employees based on marital status and sexual orientation is prohibited by law in some jurisdictions. |
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What You'll Learn
Common-law marriage and employee benefits
Common-law marriage is a legally recognised union in eight states and the District of Columbia in the US. A couple can enter into a common-law marriage through mutual agreement and public behaviour without the need for an official license or ceremony. Common-law marriages are also recognised in Canada, where couples who live together for a continuous period of one year are considered to be in a common-law relationship and can apply for joint public service pension benefits and group insurance coverage.
While common-law marriages are legally recognised, they can cause confusion for employers when it comes to providing employee benefits for spouses. This is because insurers are subject to state regulation and must adhere to the definition of "spouse" as established by the state. Self-insured plans may choose to exclude common-law spouses from their definition of a spouse, but they must clearly communicate this exclusion. If a self-insured plan does not explicitly exclude common-law spouses, they must be included in spousal benefits.
Under the Health Insurance Portability and Accountability Act (HIPAA), employees have the right to enrol their spouses in health coverage. This right extends to common-law spouses, who are considered lawful spouses under federal law. As such, employers that sponsor insured health and welfare plans generally cannot exclude common-law spouses from those plans. However, it is important to note that plans from different companies may have different standards, and it is the responsibility of the employee to ensure that their spouse is eligible for benefits.
The dissolution of a common-law marriage is similar to that of a traditional marriage and requires a divorce decree. Once divorced, the former common-law spouse may have COBRA rights to continue health coverage under certain plans. However, it is important to note that common-law spouses cannot be added to a group plan for small business health insurance, as they do not qualify as employees in the eyes of health insurance providers.
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Common-law employees and health insurance
The term "common-law employee" is used by some insurance companies when referring to health insurance plans. According to the Internal Revenue Service (IRS), a common-law employee is someone over whom the business owner has control in terms of what work will be done and how it will be performed. This means that the person carrying out the task may be classified as a common-law employee.
A common-law employee cannot be the business owner or their spouse. Therefore, if a business is run solely by the owner and their spouse, it will not qualify for a group plan for small business health insurance. However, if there is at least one common-law employee, a small business can get a group health insurance plan. This employee must be working full-time, which is defined as at least 30 hours per week, and must opt to enrol in the group plan.
It is important to note that the definition of a "common-law employee" may vary depending on the insurance company and the specific plan. Additionally, the rights and responsibilities of common-law spouses in relation to employee benefits can be complex, especially in the case of common-law marriages. While all states recognize valid common-law marriages, insurers must adhere to the definition of "spouse" established by the state in which the marriage was established. This can impact the enrollment of common-law spouses in health and welfare plans.
To summarize, the definition of a common-law employee is important for small business owners to understand when constructing health insurance plans for their employees. While a spouse cannot be considered a common-law employee, the presence of at least one common-law employee can enable a small business to obtain a group health insurance plan.
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Common-law employee vs. independent contractor
A common-law employee is defined by the degree of control exerted by the employer over the employee. According to the Internal Revenue Service (IRS), if a business owner can control what work will be done and how it will be performed, then the person carrying out the task may be classified as a common-law employee. This is true even if the employee is given freedom of action, as it is the right to control that matters, not the exercise of that right.
Common-law employees differ from independent contractors in that contractors have more control over their work. They are self-employed and do not have to answer to the business management team. They are free to execute their job duties using their own processes and are not trained by the business on how to do their job. They are also free to seek out business opportunities and customers.
Independent contractors are usually hired for a specific time period or project, whereas employees are often hired indefinitely. Contractors generally incur more unreimbursed expenses than employees and are more likely to incur losses rather than profits. They do not have taxes withheld from their pay and are not entitled to the protections of employment and labor laws.
It is critical for business owners to correctly determine whether individuals providing services are employees or independent contractors, as this affects the taxes and reports that must be submitted to federal and state governments. For example, employees are generally required to receive a W-2 form, while independent contractors receive Form 1099-MISC. Additionally, businesses must withhold and deposit income taxes, Social Security taxes, and Medicare taxes from employee wages, as well as pay the employer portion of these taxes.
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Common-law employee classification
A common-law employee is classified as someone who performs work for an organisation or individual that has control over what work is done and how it is done. This is a traditional employer-employee relationship, where the employer has the right to control the details of how the services are performed. This classification applies to both full- and part-time employees.
The classification of a common-law employee is important for IRS purposes, as it determines the employer's responsibility for withholding federal income taxes and FICA taxes, which contribute to Medicare and Social Security. Employers do not have the same withholding requirements for independent contractors, who manage their own taxes and insurance contributions.
To determine whether an individual is a common-law employee or an independent contractor, a common-law employee test can be applied. This test evaluates the relationship between the employer and the worker, considering the behavioural, financial, and relational aspects of their connection. Behaviourally, the test examines the level of control the employer has over the employee's work and how it is executed. Financially, the test looks at the employer's involvement in the worker's pay, expense reimbursements, and provision of tools and equipment. Relationally, the test considers the significance of the worker's contribution to the company's operations and whether they have a contract or qualify for benefits.
It is important to note that a spouse is not considered a common-law employee. If a business is owned and operated solely by a spouse and their partner, they typically do not qualify for a group plan for small business health insurance. This classification is crucial for small business owners to understand when structuring their health insurance plans.
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Common-law marriage and divorce
Common-law marriages, also known as informal marriages, are legally recognised in some US states. Common-law marriages are formed through a couple's mutual agreement and public behaviour, without the need for an official license or solemnisation. Despite the lack of a paper trail, common-law marriages are treated like any other marriage in states where they are recognised. This means that common-law married couples must go through a similar divorce process as traditionally married couples.
The process of divorcing a common-law marriage can be more complex than a traditional marriage. The first step is to prove that a valid common-law marriage existed, which can be done through evidence such as cohabitation, shared finances, or public acknowledgment of the relationship. The specific requirements for proving a common-law marriage vary by state. For example, Texas requires three key elements to be met: an agreement to be married, living together as a married couple, and presenting as a married couple to others. Other states may have additional or different criteria, such as Rhode Island, which requires both parties to not already be married and be of legal marriage age.
Once a common-law marriage is proven, the divorce process proceeds similarly to a traditional marriage. This includes deciding on matters such as property division, child custody, and support. If there are no assets or children involved, it may be simpler for the couple to informally break up rather than go through the legal divorce process. However, without a formal divorce decree, one partner may later claim assets from the marriage, creating potential financial complications.
It is important to note that the laws and requirements regarding common-law marriage and divorce vary across different states in the US. Seeking legal advice from an experienced attorney in the relevant state is crucial to understanding the specific process and requirements.
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Frequently asked questions
A common-law employee is someone who performs work for an organisation that has control over what work is done and how it is done. It is a "traditional" employer-employee relationship.
Independent contractors have more control over their work and are self-employed. Common-law employees have a more structured work schedule and the employer has more say over how their work is executed.
No, a spouse cannot be a common-law employee.
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