California law requires that any business having one or more employees must carry workers’ compensation insurance. Hiring workers as independent contractors is a common employment arrangement, and one employed by businesses trying to get around the law’s requirement that a business with employees must carry insurance. It is not uncommon for employers to operate under the mistaken belief that including a provision in their employment contract stating that a worker is an independent contractor is an air-tight lock on showing that the worker is not, in fact, an employee. However, this is not always the case. The contents of an agreement between a worker and a business is not the only factor when determining if a worker’s status as an independent contractor or an employee. This becomes an essential question when an employer is determining whether workers’ compensation insurance is necessary.
First, it is important to note that the labor code presumes that a worker is an employee. It is possible, however, to overcome that presumption. As already mentioned, a written agreement between the business and the worker is not determinative. Instead, the most important factors are actually whether the business has the right to control the worker, the way the work is done, and what work is actually performed. If the business does have the right to control these factors, then the worker is probably an employee, and not an independent contractor. So, for example, if a business tells the worker that she must be present at her desk, every day from 9 am to 3 pm, her work must be performed using particular business software and in a particular manner, then that worker is probably an employee. However, if the worker may work remotely and use her own methods to accomplish the work requested, then the worker may, in fact, be an independent contractor.
It is also important to note that just because a worker is paid like an independent contractor does not mean that the worker actually is an independent contractor. An employer’s decision to provide a worker with a 1099 instead of a W-2 has no bearing on whether the DLSE will decide if the worker is an employee.
A variety of other factors may be taken into account when deciding if a worker is an employee. These may include, but are not limited to special skills required to perform the task, whether the worker is engaged in a job that is distinct from that of the business, what tools the business provides, local custom of whether such a job is usually performed by an employee or independent contractor, and whether the worker was paid by the time spent or by the job completed.
The issue of whether a worker is an independent contractor or an employee is not only fact sensitive, but legally complex. Your business could face serious consequences for getting the distinction wrong. Contact me at (714) 516-8188 or email [email protected] to talk about your workers and protecting your business.