California Labor Law: Independent Contractor vs Employee Misclassification—Attorney Weighs In
If you are an employer and have misclassified your workers as independent contractors, you could owe the Internal Revenue Service a big chunk of change in employment taxes for your workers. "You may also be liable to the worker for reimbursement of business expenses, overtime pay, meal and rest period violations, and other damages and penalties," says Emma. Conversely, if you have a solid basis to classify workers as independent contractors, you can significantly decrease your overhead.
"In California, classification of workers as independent contractors or employees ultimately comes down to the degree of control exerted by the employer over the worker - the more control that an employer exerts, the more likely the worker is an employee," says Emma. So the more you are told what to do and how to do it, the more you resemble an employee. Emma also points out that a signed contract stating that the worker is an independent contractor does not determine the matter; "Courts look beyond the contract to the actual conduct of the parties."
In addition to "control," California Courts consider other factors in determining whether a worker is properly classified as an employee or independent contractor. The following factors, among others, suggest that you are an employee and not an independent contractor:
1. You perform work that comprises the core business of the employer and is not a distinct occupation or business from that of the employer. "For example, if you are a cab driver working at a taxi company, then your occupation is not distinct from that of the employer and actually comprises the core business of the employer. That suggests an employment relationship," says Emma.
2. The employer supplies the instrumentalities, tools and the place for you. "If you work from the employer's office and make use of the employer's computers, machinery and infrastructure, then you are more likely to be an employee," explains Emma.
3. You are not permitted to subcontract or hire employees of your own to complete the work. "If you are not permitted to outsource your work to others or employ helpers, then you may not be truly independent and may actually be an employee," notes Emma. "Similarly, if you have no opportunity to profit from effective management of your business, then you may not truly be operating an independent business and may actually be an employee."
4. You perform the same work as employees. "If you find yourself doing the same work as employees and reporting to the same managers as employees, then you are probably also an employee."
5. You work at-will, on a full-time basis, for an extended period of time. "Independent contractors are typically engaged by employers on a project-basis or for a limited period of time specified by contract. If you have been working full-time for months or years without any specified termination date, then you resemble an employee and may be misclassified," explains Emma.
6. You are paid the same amount on a regular interval without submitting invoices. Emma says that "Independent contractors typically bid on projects or specify an hourly rate and then submit invoices to the employer. Employees, on the other hand, simply show up to work and are paid for their time on a weekly or bi-weekly basis. If you are routinely paid the same amount without having to submit invoices and regardless of the project or work your are performing, then you are more likely to be an employee."
7. You work exclusively for one employer on a full-time basis. Emma explains that "Independent businesses typically provide services to multiple customers and clients at any given time. If you work exclusively for one employer on a full-time basis, this fact suggests an employment relationship."
The following factors that suggest you are an independent contractor:
1. Your work is distinct from that of the employer.
2. You supply the materials, tools and place to work.
3. You have invested in your own equipment.
4. You have employees.
5. Your work requires a special skill or license.
6. Your contract is on a project basis or for a limited time period.
7. You have other customers/clients.
8. You can increase or decrease your profits based on managerial decisions.
If you are classified as an independent contractor instead of an employee, you should consider whether the classification is in your best interest. "California is progressive and has many laws that protect employees that do not apply to independent contractors," says Emma. "These include minimum wage laws, overtime laws, meal and rest period laws and many others. Most workers are unaware of their rights in the workplace." By selecting a lawyer instead of representing yourself at a government agency hearing, the lawyer can investigate your situation and assert claims on your behalf that you are not aware of. A lawyer will also know how to maximize the value of your claims. "For example, you may believe that you are misclassified and owed $1,000 for missed meal breaks," explains Emma.
"However, if an attorney were to review your case, he or she might find additional claims that you are not aware of such as unpaid overtime claims, missed rest periods, claims against the employer for failing to reimburse you for business expenses, and various other penalties and damages. In this example, if you were to proceed on your own, the government would only consider what you originally claimed (i.e., that $1,000) and nothing more." Most employment attorneys take cases on a contingency basis. "If you think you may be misclassified as an independent contractor, consult with a lawyer and find out where you stand," says Emma.
More about independent contractor misclassification from attorney Leonard Emma of Law Office of Randall Crane next week - stay tuned!