It seems that lately we are seeing more and more employee/independent contractor misconceptions and lawsuits here in my office. The confusion arises from a lack in clear definitions between the two titles, which leads to various unintentional misclassifications that can prove costly to employers later down the road.
The independent contractor vs. employee battle has been going on for years. I've written about this in the past. But greedy plaintiff's lawyers and government taxing authorities are both out to get any businesses that are abusing the independent contractor classification.
According to the California Labor Commissionerâ€™s Office, all workers are presumed to be employees unless their employers can prove otherwise. Unfortunately for the employers, there is no easy test to determine if your worker fits into the independent contractor position. During disputes, the Labor Board uses a multi factor test, which takes numerous unique factors into account. Some (but not all!) factors they consider are:
- Whether the employer or employee controls the work details and how the work is to be conducted
- Whether the work is a regular part of the employerâ€™s business
- The workerâ€™s investment in the materials or equipment
- The method of payment, either by time or by job
- The length of time in which the job was performed
It is very important to note that the labels or titles of a position do NOT effect its classification. For example, if a business owner hires a worker as an â€œindependent contractorâ€ that does NOT mean that they automatically are. The same goes with tax status. The act of paying a worker like an independent contractor, through a 1099 instead of a W-2, has NO significance on their actual employment status. This comes as a huge surprise to many of my clients. You don't simply get to pick and choose which classification to apply!
As you can see, the employee/independent contractor distinction is multi-faceted. Some cases are simple, for instance hiring a year-round janitor is different from hiring a professional cleaning service to clean twice a year. However, the distinction can quickly become complicated. For example, the Labor Board has ruled in the past that taxi drivers who paid a daily lease fee to a taxi company are employees rather than independent contractors despite being able to drive wherever they wanted and choose the hours the work. Uber is having its own independent contractor problems.
If you utilize independent contractors in your business, the time is now for you to complete a top-to-bottom review. Getting this area of the law wrong can cost you.
If you have questions about utilizing independent contractors in your business, please call my office at (916) 333-2222.