Independent Contractor or Employee?

A recent New York Times article discussing government crackdown on employers who misclassify employees as independent contractors opened a small window on a very big issue for California workers. One report notes that California’s employers are some of the largest abusers of the independent contractor designation with random audits showing up to 33% of employees are misclassified and millions of dollars in lost tax revenue.

From an employee’s perspective since taxes are not deducted from an employee’s paycheck, many employees may think that being classified as an independent contractor is negligible or maybe even a good thing. However, some things to consider — independent contractors are not covered by most employment laws such as wage and hour laws, the anti-discrimination statutes (Family Medical Leave Act, Americans with Disabilities, Title VII and FEHA), occupational safety laws, and the unemployment insurance code. One of the limited exceptions is that FEHA protects independent contractors from racial and sexual harassment.

From the employer’s perspective, if they establish that a worker is an independent contractor the employer may avoid paying unemployment insurance, social security benefits, workers’ compensation, state disability insurance, minimum wage, and overtime.

California’s Labor Code presumes that workers are employees and the burden is on the employer to establish an independent contractor relationship. The biggest factor is the “right to control” element – if the employer controls the manner and means by which the worker’s tasks are accomplished, then the worker is most likely an employee. The fact that the employer and employee have a written agreement is one of many other factors and is not controlling in the analysis.

For both employees and employers, it’s important to thoroughly analyze the type of work to be performed, the resources involved, and the level of control over the worker’s time.