Employee or Independent Contractor
Do you have an independent contractor working for your company? The law establishes clear distinctions between employees and independent contractors, and it is important to ensure that your personnel are classified correctly. In California, there isn’t a set definition of “independent contractor,” and the determination of whether a worker is an independent contractor or employee depends on the facts of the situation. Historically, the primary factor to consider has been to what degree the hirer retains the right to control the worker’s means and methods of performance along with the outcome of the work. Employers often try and use independent contractors for roles traditionally performed by employees, but misclassification of an employee as an independent contractor can be a costly mistake for a business.
The New “ABC” Test
A recent California Supreme Court case, Dynamex Operations West, Inc. v. Superior Court, established new guidelines for whether a worker can be considered an independent contractor with the “ABC” test. Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes:
- that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
- that the worker performs work that is outside the usual course of the hiring entity’s business; and
- that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.”
If an employer is challenged, the presumption is that the worker is an employee unless the employer can meet all three parts of the test.
Independent Contractor Do’s and Don’ts
Along with the new 3-part ABC test, here are some tips for hiring an independent contractor.
|Do execute a written independent contractor agreement clearly establishing the independent contractor relationship||Do not hire independent contractors without clearly identifying the independent contractor relationship and scope of engagement|
|Do ensure that independent contractors customarily engage in an independently established trade, occupation or business (ex. independent contractors are in the business of providing certain work on a contract by contract basis)||///|
|Do have the independent contractors use their own tools, equipment, supplies, etc. to perform the work||Do not require that independent contractors use your tools, equipment, supplies, etc. to perform the work|
|Do report your independent contractors to the EDD and timely file and issue 1099s.||Do not hire independent contractors to do work that is within your usual course of business (ex. T-shirt design company hiring independent contractor to work as T-shirt designers)|
|Do ensure that independent contractors submit invoices for payments||///|
|Do hire independent contractors for a definite period of time (ex. per project or by set period of time)||Do not require independent contractors to come to your “office” or set their work hours (ex. 9am-5pm)|
|///||Do not control or direct the manner of work performance (ex. “how” the work should be done)|
|Do preferably work with independent contractors that are a corporate entity (ex. work with Jane Doe Corp or Jane Doe LLC instead of Jane Doe, an individual)||Do not require exclusivity from independent contractors (ex. let them work for other clients)|
|Do ensure that independent contractors have liability insurance (especially if independent contractors are professionals)||Do not provide independent contractors any employment benefits|
|Do ensure that independent contractors’ licenses, if any, are current||Do not pay or withhold any taxes for the independent contractors|
Legal Disclaimer: The information in this article is provided for general informational and educational purposes only. It is not intended to be legal advice and does not create an attorney-client relationship.