Employee or Independent Contractor

As a business owner, there are many decisions you must face.  You have to decide the type of business you want to run, where to establish your business, and what type of legal business structure will best suit your needs.  Another important decision is who you will hire to be your employees, and in many cases, if your business’s needs will be better served using independent contractors instead of hiring workers as employees.  As a business owner, it is essential that you understand whether your worker is an employee or an independent contractor. There are many reasons for this, but one of the most important is that employers are obligated by California law to carry workers’ compensation insurance for all employees, but not for independent contractors.  Unscrupulous employers may attempt to classify workers as independent contractors in an attempt to get out of paying these insurance premiums.

Employers need to first understand that the way they classify a worker is not dispositive as to whether the worker is an employee or an independent contractor.  If the issue ends up before a judge, there a variety of factors that will be considered, and how the employer classifies the worker is just one issue.

In general, an independent contractor is a worker who is hired by a business because the business does not usually engage in the type of business that the independent contractor performs.   Usually an independent contractor will have the privilege of setting his or her own hours and dictating how the work will be done.  The independent contractor usually also sets his or her own fees, brings his or her own tools, and may have multiple other clients in addition to the employer in question.

By contrast, an employer typically has much more control over an employee.  An employee will have specific hours that he or she is scheduled to work and the employer will have control over how the employee performs his or her work.  The employer will often supervise work directly and provide training for the position in question.

In April 2018, the California Supreme Court established a new three prong test to determine if a worker is an independent contractor.  If a business wants to prove a worker is an independent contractor, it must prove:

  1. The worker is free from the control of the company in connection with how he or she performs work, both in reality and in terms of the contract
  2. The worker performs work that is outside the scope of the usual business of the employer
  3. The worker is usually engaged in an independent trade or business.

It is essential that you properly classify your workers.  Call us today to talk about workers’ compensation and your business.

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