What is an employee versus an Independent Contractor?
Independent contractor status is defined in Section 3353 of the California Labor Code. But employers need to be aware that the Internal Revenue Service also has a list of qualifiers. The IRS created this list because there were abuses by employers wrongly classifying employees as independent contractors for the purpose of not having to pay overtime, and other requirements.
Employers need to understand the difference so that they can avoid the problems that come from misclassifying employees. Most employers get found out when the employee tries to get benefits that they should be entitled to. Another way that employers get found out is when the Department of Labor comes to inspect their payroll records.
California Labor Law defines an independent contractor as follows.
Is this person in business for themselves. As such they should render services that are for a specific time, and they invoice the client the same as any business would. Ideally, an independent contractor will work for more than one company and will be in control of their own time. They will also provide all necessary supplies that are needed to do the job. The hours that are worked will be at the discretion of the contractor, not the employer. It is to be noted that just defining someone as an independent contractor does not make them one.
Additional Factors
The Internal Revenue Service has compiled a list of several points that it uses to determine if the standard is met or not.
Profit or Loss
One consideration is does this person have the ability to make a profit or suffer a loss from the project they are working on.
Who the Worker Works for
As stated above does this person work for just one company or do they have several contracts.
Services
- Does this person offer his services to others and or the general public?
- Must the work be done by this person or can the work be delegated to an employee of the independent contractor?
Control
The question here is this does the contractor get a lot of their directions from the employers or are they working independently of the company as any real business would. The following points need to be considered.
- Is the employer dictating the number of hours spent on the project?
- Is the employer assigning a particular location that the contractor must work at?
Payment Information
Is this person being paid like an employee either by the hour or by the job as in piece work, or is the person providing an invoice to the employer?
An ounce of prevention is worth a pound of cure.
To help protect yourself make sure that you have made to right classification concerning the independent contractor status by doing the following;
- Make sure that this person is in control of their own time.
- Make sure that they invoice you with a company name and logo on their letterhead.
- Make sure that there is the ability to be profitable or the ability to take a loss on the project.
- Make sure you are not paying them hourly wages, or by salary.
- It is best if you are not the only company that this person is providing services for.
- You should also have a contract.
Call Now and Schedule Your Free Consultation 888-358-2221
We will quickly assess your employee handbook and your safety program. We will help you to see how you are doing with your compliance issues. Everything we cover will be backed up by documentation.