Independent Contractor versus Employee

December 16, 2014

Independent Contractor versus Employee

Source California Division of Labor Standards Enforcement (DLSE)

As a company running a business or an individual working for themselves, the topic of independent contractor versus employee is a very important factor to consider when accessing your risk management.

As a company you want to be very careful that you understand the factors involved in determining your work relationship to an individual. Employers may improperly classify their employees as independent contractors if they do not understand their business relationship to the individual in regards to the different departments of law; such as, the Employment Development Department (EDD), the Division of Labor Standards Enforcement (DLSE), the Franchise Tax Board (FTB) and the Division of Workers’ Compensation (DWC). If wrongly classified you could be liable if a situation occurs under workers’ compensation, unemployment, disability, minimum wage or other wage and hour law requirements.

There are a number of factors to consider when classifying an independent contractor or an employee, all of which must be considered, and none of which is controlling by itself. The economic realities test, adopted by the California Supreme Court states, the most significant factor to be considered is whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker both as to the work done and the manner and means in which it is performed. Additional factors that may be considered depending on the issue involved are:

  • Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
  • Whether or not the work is a part of the regular business of the principal or alleged employer;
  • Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
  • The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
  • Whether the service rendered requires a special skill;
  • The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
  • The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
  • The length of time for which the services are to be performed;
  • The degree of permanence of the working relationship;
  • The method of payment, whether by time or by the job; and
  • Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

Read more from California Division of Labor Standards Enforcement (DLSE) with FAQs

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