ARE YOU REALLY AN INDEPENDENT CONTRACTOR?
Employer's regularly violate California law by categorizing individuals who work for them as independent contractors when in actuality, the individuals are employees. Such misclassification is a violation of the law and a misclassified individual can recover significant damages from his or her employer.
Why do employers choose to characterize individuals as independent contractors rather than employees?
When an independent contractor performs work for an employer, the employer does not have to comply with the requirements of an employment relationship. As a result, an employer does not have to pay payroll taxes on the wages it pays to the independent contractor. Instead, the burden of paying the applicable taxes on these wages falls to the independent contractor.
An employer also does not have to pay overtime wages to an independent contractor, nor provide an independent contractor with meal and rest breaks. Likewise, an employer also does not have to comply with many other requirements that would be necessary if the individual who was performing work was an employee.
Simply put, employers believe it is less costly and less burdensome to define an individual as an independent contractor rather than as an employee. However, improperly defining an individual as an independent contractor when the individual is really an employee, can result in severe penalties and liability for an employer.
Independent Contractor vs. Employee
The starting point regarding the determination of whether an individual is an independent contractor or an employee is to think about a quintessential independent contractor and a quintessential employee.
A quintessential independent contractor is an individual who has their own business and provides services to different individuals and entities. An independent contractor is their own boss, conducts their business however they so choose, and provides all the necessary tools and equipment to do their job.
Tiffany is a bookkeeper who has her own business, Excellent Bookkeeping. Tiffany provides bookkeeping services for a number of local businesses and is paid a fixed amount each month for her services. Tiffany does all of her work on her own computer using her own accounting software.
John is a handyman. John is hired by different individuals and businesses to perform maintenance on homes and commercial buildings. John provides all of the tools and equipment he needs to make the necessary repairs. Apart from being told what repair needs to be done, John is not told how to make the repairs, what materials to use, or what hours to work.
A quintessential employee is an individual who performs work for an individual or an entity and is completely subject to the control of that individual or entity regarding the work they perform. As such, an employee is told what work do and how that work is to be done.
Susan is an accountant who works for Main Street Food Products, Inc. (“Main Street”). Susan is required to report to work each day at Main Street where she is required to work from 8:30 a.m. to 5:30 p.m. Susan's boss tells her what work she is to perform and how that work is to be completed. Susan only works for Main Street and receives a paycheck every two weeks for her efforts.
Frank is a maintenance worker for Main Street Building Co. (“Main Street”). Frank's job is to make repairs at Main Street's properties. Frank is required to wear a Main Street uniform, to report to work at 7:00 a.m. each day, and to drive a company truck throughout the day. Frank is assigned projects by his supervisor and is told in which order the projects should be done, what materials he is to use, and when the projects must be completed.
Test: Independent Contractor or Employee
There is no single factor that is determinative of whether an individual who provides services to another is an employee or an independent contractor.
Instead, the facts, circumstances, and conditions of the relationship between the service provider and recipient of those services is analyzed to determine whether the individual providing services is really an employee or an independent contractor.
The most influential factor in this determination is the amount of control the recipient of the work has over how the work is performed. The more control the recipient of the work has over how the work is performed, the more likely the recipient of the work is an employer and the provider of the services is an employee. Conversely, the less control the recipient of the work has over how the work is performed, the more likely the provider of the work is an independent contractor and not an employee.
Joe works for a delivery company and he spends his days making deliveries throughout Los Angeles. Joe drives his own car but is required to put the company's sticker with its logo on his car. Joe is required to start his shift each morning by 9:00 a.m. and must wear the company's uniform. The company tells Joe what deliveries to make, determines the order Joe should make his deliveries, and tells Joe what routes to drive when making his deliveries. Because of the control the company exerts over how Joe performs his job, i.e. what uniform he wears, what deliveries he makes, the order he makes his deliveries, the route he takes to make his deliveries, Joe is an employee, not an independent contractor.
Other factors that are examined to determine whether an individual is an employee or independent contractor include:
Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
Whether or not the work is part of the regular business of the principle;
Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
The alleged employee's investment in the equipment or materials required by his task;
The skill required in the particular occupation;
The kind of occupation, with reference to whether in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
The alleged employee's opportunity for profit or loss depending on his managerial skill;
The length of time for which the services are to be performed;
The degree of permanence of the working relationship;
The method of payment, whether by time or by the job;
Whether or not the parties believe they are creating an employee-employer relationship.
The aforementioned factors are not analyzed separately as independent tests. Rather, all of these factors are considered and their significance often depends on the interrelation between them. It is by looking at all of the factors and assessing the parties' relationship as a whole, that the determination is made whether or not an individual is an employee or an independent contractor.
There is no rigid, mechanical test that is applied to determine whether an individual is an employee or an independent contractor. Instead, the factual details of the parties' relationship is analyzed to determine if the parties' relationship is more like that of an employee-employer or independent contractor-hirer. In this analysis, particular emphasis is given to the amount of control that the recipient of an individual's services has over how those services are provided.
Reach out to our Los Angeles employment lawyer. Contact Malatesta Law at (424) 284-1384.