Determining Independent Contractors
California labor law defines an independent contractor as “any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.” An independent contractor works for another entity under a verbal or written contract, usually for a specific length of time. The independent contractor is responsible for only his/her own work, and is generally responsible for his/her own schedule. The independent contractor must also be responsible for how the work is completed.
Different Tests to Define Independent Contractor: There is no set definition of the term “independent contractor” that applies for all purposes. The right to control the manner and means by which the individual performs his or her services is generally the most important factor.3 However, you have to look at the interpretations of the various enforcement agencies and the courts to determine if a worker is an employee or an independent contractor in any given situation. It is possible that the same individual will be considered an employee for purposes of one law and an independent contractor under another.
For example, in a wage claim where employment status is an issue, the Division of Labor Standards Enforcement (DLSE) will often use the five-prong economic realities test to decide the issue. However, in a separate matter before a different state agency with the same parties and same facts, that agency may be required to use a different test (such as the control test) which may result in a different determination.
You can find extensive information on federal requirements for independent contractor status on the IRS website at www.irs.gov. You can find information on state requirements, which vary from federal requirements, on the EDD’s website.
Because different tests may apply, and because the potential liabilities and penalties are significant if the individual is misclassified, each working relationship must be thoroughly researched and analyzed. You should assume all workers are employees unless they clearly meet all legal requirements and pass all tests various federal and state agencies use for proper classification of independent contractors. Consultation with legal counsel is usually warranted.
Common Misconceptions About Independent Contractors: Many employers believe they will be safe from the significant penalties of misclassification if their relationship meets any of the conditions listed below. This is not the case. Hiring organizations are not immune just because the worker:
Different Tests to Define Independent Contractor: There is no set definition of the term “independent contractor” that applies for all purposes. The right to control the manner and means by which the individual performs his or her services is generally the most important factor.3 However, you have to look at the interpretations of the various enforcement agencies and the courts to determine if a worker is an employee or an independent contractor in any given situation. It is possible that the same individual will be considered an employee for purposes of one law and an independent contractor under another.
For example, in a wage claim where employment status is an issue, the Division of Labor Standards Enforcement (DLSE) will often use the five-prong economic realities test to decide the issue. However, in a separate matter before a different state agency with the same parties and same facts, that agency may be required to use a different test (such as the control test) which may result in a different determination.
You can find extensive information on federal requirements for independent contractor status on the IRS website at www.irs.gov. You can find information on state requirements, which vary from federal requirements, on the EDD’s website.
Because different tests may apply, and because the potential liabilities and penalties are significant if the individual is misclassified, each working relationship must be thoroughly researched and analyzed. You should assume all workers are employees unless they clearly meet all legal requirements and pass all tests various federal and state agencies use for proper classification of independent contractors. Consultation with legal counsel is usually warranted.
Common Misconceptions About Independent Contractors: Many employers believe they will be safe from the significant penalties of misclassification if their relationship meets any of the conditions listed below. This is not the case. Hiring organizations are not immune just because the worker:
- Wanted to be treated as an independent contractor
- Signed a written contract
- Does assignments sporadically, inconsistently or on-call
- Is paid commission only
- Has no supervision
- Performs assignments for more than one organization