According to this article in Bloomberg, states across the country are cracking down on employers that misclassify employees as independent contractors.
The article points out that states are taking action for financial reasons: employers are not required to withhold taxes for independent contractors. Basically, a person misclassified as a contractor means a loss of revenue for the state.
Sacramento employers shouldnâ€™t be afraid to utilize the services of independent contractors. A valid contractor agreement can be a win-win for both the business owner and the worker.
Making sure that the arrangement is acceptable under California law will keep the state from digging through your business.
Different courts use different tests to determine whether a person is a valid contractor or not, but the main test is typically this: whether you, the business owner, has the right to â€œdirect and controlâ€ the manner and means in which the contractor carries out the job.
The stronger the control of the worker by the employer, the more likely there will be a finding of an employment relationship. However, this is not the only test.
There are a number of secondary factors state officials use when determining if there is a valid contractor arrangement. They can be viewed here.
The consequences of misclassification can include scrutiny by the Sacramento Labor Commissioner, civil penalties, and expensive lawsuits by contractors and employees.
Before entering into a independent contractor relationship with a worker, it is best to run the situation by a business lawyer in Sacramento. Call my office and I can discuss the specifics of your situation. I can be reached at (916) 333-2222.