Articles Posted in Independent Contractor

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Many California businesses use independent contractors. They do so for a handful of reasons, but one of the most common reasons is to save money. An independent contractor does not involve the same costs that an employee does, such as overtime, payroll taxes, vacation and sick time, and other benefits.

The perceived cost savings can come at a steep price for the employer in the form of an employee lawsuit for misclassification or a payroll audit by a governmental agency. The end result can be that an independent contractor is reclassified as an employee. This will cost the business owner significant amounts of money for unpaid overtime, payroll taxes, and other penalties, reaching backward in time three to four years.

Reclassification turns the independent contractor into an employee, retroactively, just like a zombie. And we all know how hard it is to kill zombies, especially ones that are due a lot of money.
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1084673_doubt-1.jpgThe question of whether a worker is an employee of an independent contractor is an important one. Beginning in 2008, governmental agencies stepped up their enforcement of workplace laws in an effort to unearth independent contractor misclassifications. The Department of Labor (DOL), Internal Revenue Service (IRS), Employment Development Department (EDD), and Division of Labor Standards Enforcement (DLSE) have all increased their investigation of businesses to specifically identify employee misclassification. The cost of misclassification can be steep, including back wages, penalties, and interest.

The DOL estimates that almost one-third of employers misclassify employees. Since 2010, the DOL and IRS have targeted construction, home health care, transportation, and warehousing industries.

California State Law

In California, the principle test for determining if someone is an employee or an independent contractor is whether “the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” Borello & Sons, Inc. v. DIR (1989) 48 Cal.3d 341, 350.

The DLSE starts with the presumption that the worker is an employee. This is a rebuttable presumption that the employer must overcome. Labor Code Section 3357. The actual determination of whether a worker is an employee or independent contractor depends upon a number of factors, none of which is controlling by itself.
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