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Are You an Employee or Independent Contractor?

— March 6, 2020

An employee is entitled to a wide variety of protections under federal and state law. Some of the protections apply only to employees and not independent contractors.

One of the most common mistakes made by employers is that of misclassifying employees as independent contractors. There are instances when an employer makes the honest mistake of misclassifying workers because they do not fully understand the law. However, other employers intentionally misclassify workers in order to avoid their legal obligations to their employees. This article will discuss the California law identifying an employee and an independent contractor.

It is important to realize that being misclassified means that an individual is probably missing out on their civil rights and benefits that they are entitled to; this is especially so if an employee is misclassified as an independent contractor. One specific right an employee stands to lose when being misclassified as an independent contractor is when they work overtime but are not paid for it.

An employee is entitled to a wide variety of protections under federal and state law. Some of the following protections apply only to employees and not independent contractors:

  • Employers are required to withhold state and federal payroll taxes for their employees
  • The employer must provide worker’s compensation insurance for their employees
  • Employees are eligible for unemployment insurance benefits from the state
  • Employees are entitled to wage and hour protections which include minimum wage and overtime
  • All employees are protected under federal and state anti-discrimination laws

Generally, an independent contractor is someone who is in business for themselves. Such an individual usually performs work that requires a specialized skill or trade that is not readily available as part of the company’s regular business. Independent contractors will generally perform work for multiple customers or clients, they set their own fees, work-from-home or their own place of business, provide their own tools and equipment, and determine how and when the work is to be done. The client may provide specifications or deadlines for the work; however, the independent contractor decides how much time to spend and how best to do the job. For example, a web content writer who works from home, provides services for multiple clients, sets their own hours, and gets paid on a project basis would thus be classified as an independent contractor.

People working at various computer desks; image by Alex Kotliarskyi, via
People working at various computer desks; image by Alex Kotliarskyi, via

An employee, on the other hand, is someone who a company has much more control over. An employee’s work performance and time is regulated by the company. The employee generally performs work on a regular basis and as a part of a company’s business. Employees also have regularly scheduled hours, work at the employer’s place of business, receive training and direction from the company, receive an hourly wage or salary, and are subject to discipline by the company. The company has control over how the employee performs their work and often provides the necessary equipment, training, guidelines, or are under supervision over the work product. For example, a sales consultant who works from 9 a.m. – 5 p.m. during the week at the office and receives $15 per hour and the consultant has a supervisor who reviews his or her work; this individual is classified as an employee.

While this is the case it is important to realize that with the introduction of flexible working weeks, days and hours, it is easy to blur the lines between being an employee and an independent contractor. As a result, in California there are multiple state agencies that have created their own tests in order to determine whether someone is an independent contractor. Such a test is dependent upon which agency is interested in the classification. For example, the Employment Development Department applies its own test if it believes the employer should have withheld payroll taxes from your wages or if it is deciding whether you are eligible for unemployment benefits. Federal agencies such as the IRS also have their own independent contractor tests. The independent contractor classification also is common with the California Department of Labor Standards Enforcement; this is the agency responsible for enforcing wage-and-hour laws. When an employee is misclassified as an independent contractor, the employer evades their responsibility to provide minimum wage, overtime, meal periods and rest breaks, as well as similar rights that are granted to employees.

On April 30, 2018, the California Supreme Court rejected one of the most common tests used to determine whether an employee was an independent contractor. That test was derived from a 1989 California Supreme Court case and called called the Borello test. 

The court favored the ABC test as a classification tool of a worker as an independent contractor. In order to determine if a worker is an independent contractor companies must prove the following:

  • The worker is free from the control and direction of the company in connection with performing the work, both in reality and under the terms of the relevant contract.
  • The worker performs work that is outside the usual course of the company’s businesses
  • The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work being performed for the company

If you have been misclassified as an independent contractor you may have a wage-and-hour claim against your employer. Contact a law firm of renowned professionals specializing in employment law or class action lawsuit lawyers in California.

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