Posted on November 4th, 2015
The State of California has strict penalties and fines for employers who misclassify a worker. This article provides you all the information to help you understand the differences between independent contractors vs employees.
California Labor Law indicates that the classification of a worker as an independent contractor or an employee is determined by the application of the factors contained in The California Common Law.
Following is a list of factors to help you determine if a worker is an independent contractor or an employee. These factors are based on the California Common Law and can be found at 4600 IRS manual.
While this is a list of guidelines you can use I want to give you the practical opinion as well. Its extremely difficult to have someone who works for you classified as an Independent Contractor in the State of California.
Of course many employers want to hire Independent Contractors because they have much less financially responsibility than with a employee.
California knows this so tries its best to discourage classification as an Independent Contractor.
I like to use this example as the “perfect” Independent Contractor scenario.
Imagine you owned a real estate management company and every once in awhile you called the same plumber up to do work on projects. This person has their own plumbing company, own equipment and bills you per project.
That is a classic Independent Contractor classification. Now the ones that run into problems of course are not that cut and dry. For these the state has all kinds “tests” you can use to determine what the persons work with you qualifies as. Some may fall into both categories so you may need it be overwhelming in Independent Contractor factors for it to be classified that way.
The frustrating thing for California Employers is their does not seem to be a hard, black and white rule for who we can classify as an Independent Contractor.
It seems to be based on a ton of factors they use to weigh the answer. This list below is not definite but it will help guide you to the answer if you in deed have a Independent Contractor. In my experience it has to meet almost all of these and be proven overwhelming to be an Independent Contractor before the State will agree to it.
1. INVESTMENT.
Does the worker have an investment in the equipment and facilities used to do the work? The greater the investment, the more likely independent contractor status will be found.
So when the person is performing the work for you they are more likely an Independent Contractor if they use their own equipment vs you providing it to them.
2. WORK FOR MORE THAN ONE CLIENT.
Does the worker offer services for more than one client at a time?
They are less likely to be an Independent Contractor if they cannot offer their services to another client while they are working with you.
3. SERVICES OFFERED TO THE GENERAL PUBLIC.
Does the worker offer services to the general public?
4. PROFIT OR LOSS.
Can the worker make money or lose money as a result of the work aside from the money earned on the project?
They are less likely to be Independent Contractor if they are monetarily dependent on the success of the project.
5. INSTRUCTIONS.
Does the business have the right to give the worker instructions about when, where and how to perform the services?
They are less likely to be Independent Contractor if they have to be given specific instruction by your business as opposed to them being the “expert” in the service provided.
6. INTEGRATION.
Are the worker’s services so important to the business that those services have become a necessary part of the business?
They are less likely to be an Independent Contractor if the role they play is so important that your business would collapse without it.
7. HIRING ASSISTANTS.
Does the business hire, supervise and pay the worker’s assistants or staff?
8. SERVICES RENDERED PERSONALLY.
Does the business require that the worker provide the services personally or may the services be delegated to someone else?
9. WORK HOURS.
Does the business set the work hours or is the worker the master of his/her own time?
10. SEQUENCE OF SERVICES.
Does the business have the right to control and determine the order in which services are performed?
11. REPORTS REQUIRED.
Does the worker have to submit reports accounting for the worker’s actions?
12. PAY SCHEDULE.
Is the worker paid by the hours, day, week, or month or is the worker being paid by the job or on commission?
13. EXPENSES.
Is the worker reimbursed for expenses for business or travel costs?
14. TOOLS AND MATERIALS.
Does your company provides your worker with the tools, materials or equipment necessary to perform the services?
15. EMPLOYER’S RIGHT TO TERMINATE.
May the business fire the worker at any time?
16. WORK PERFORMED ON PREMISES OF BUSINESS.
Does the worker need to perform the services on the premises of the business, or does the business control the route or location where the services are performed?
17. FULL TIME EMPLOYMENT.
Is the individual required to work full time for your company?
18. LIMITATION OF SERVICES.
Does the individual limit the availability of his services to the general public?
19. TRAINING.
Does the business train the worker to do the job in a particular manner?
20. CONTINUING RELATIONSHIP.
Is there an ongoing relationship between the worker and the business?
We hope this guide brings some clarity to your questions regarding this important subject. Please remember that these factors are a guide to help you classify correctly if a worker is an employee or an independent contractor.
You also have to consider that each factor can vary depending on the worker’s occupation and how the services are performed.