Can I classify California employees as independent contractors?

Cynthia E. Gitt - Employment & Labor - Super Lawyers

Answered by: Cynthia E. Gitt

Brown Gitt Law Group ALC
Pasadena, CA
Phone: 626-993-6792
Fax: 626-229-1917

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Not usually. The IRS and California tax authorities expect employers to payroll taxes on the wages they provide to their workers, and classifying a worker as an independent contractor also skirts important withholding and time and wage requirements. For these reasons and others, the state and the federal government limit the use of independent contractors by businesses to specific circumstances.

Beyond the tax implication, the labor code prevents employers from intentionally misclassifying employees as independent contractors. This is a separate violation from other labor code violations such as failure to pay overtime, failure to provide breaks and inaccurate wage reporting. If such a policy is companywide, it can also generate class action lawsuits, which dramatically increase employer liability, sometimes resulting in bankruptcy.

An independent contractor is different than a standard employee.

Both the state and the IRS apply a complicated test to determine who qualifies as an independent contractor and who must be considered an employee. The primary factor in this test is whether the employer has the right to control the conditions under which the contractor’s work is to be performed. If the answer is yes, the worker is usually considered an employee.

Other parts of the employee/independent contractor test include:

  • Whether the worker is performing tasks that are considered essential to the company’s service
  • If the worker must perform these tasks themselves, or if a substitute worker can be used at the worker’s discretion
  • Whether the worker carries their own business license
  • If the worker performs similar services for entities other than the employer in question

An overview of the independent contractor/employee classification issue breaks down this way: independent contractors generally are given an assignment, which they complete on their own time, at a chosen location, in their own way, without the direction of the employer. They often work under a contract that is limited to a specific project, or to be completed within a specific time frame. Employees tend to work under the supervision of the employer, at the workplace of the employer, using the equipment provided by the employer, and is subject to any deadlines, performance methods or other control that the employer imposes. For example, a landscaper paid by a gardening service might be an independent contractor, but a secretary, IT person, or health care worker is likely an employee.

It is generally better to err on the side of not classifying individuals as independent contractors. An attorney experienced in employment law can advise you on classification issues if your specific circumstances leave you with additional questions on this matter.

Disclaimer: The answer is intended to be for informational purposes only. It should not be relied on as legal advice, nor construed as a form of attorney-client relationship.

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