Employers must classify those who work for them as an employee or independent contractor. If someone who does work for a business is truly an independent contractor, employers do not have to pay payroll taxes, minimum wage, or overtime; do not have to comply with certain meal or rest break requirements for employees; and do not even have to cover independent contractors under the employer’s workers’ compensation plan.
The downside is that employers are often accused of wrongfully classifying employees as independent contractors in order to avoid complying with laws covering employees. If there is litigation concerning the status of a person whom the employer classified as an independent contractor, but the court finds the person was really an employee, the employer can face stiff penalties.
There is no employee definition found in any California statute, but from court decisions, one of the major determinations is whether or not the employer has the “right of control” over the worker. If so, the person is an employee. In order to determine if the employer has the right of control, the following factors are relevant:
- Does the employer instruct the person on how they are to do their job and supervise how it is done? Independent contractors do their job according to their industry without employer supervision.
- Can the worker be fired or quit at any time? Independent contractors work according to an independent contractor agreement and cannot be terminated unless they breach the contract.
- Is the work that is being performed a necessary part of running the business? For example, a salesperson in a retail store is an employee because selling is what the business does. If someone comes just to fix the plumbing, the plumber is an independent contractor because his or her job is not part of the daily business routine.
- Does the individual performing the job have a separate business where he or she performs similar jobs for other businesses?
- Is the person paid by the hour or by the job?
No one factor is determinative. If the employer pays the person with a Form 1099 instead of a W-2, or has a contract identifying the person who is performing the work as an independent contractor, these are only factors to be considered and neither is determinative of the worker’s status.