As the saying goes, just because you say something is, doesn’t make it so. Employers are notorious for misclassifying their employees as independent contractors. Some of the time, this can be attributed to a new business owner lacking acumen. Perhaps they took some poor advice from another business owner who has been making the same mistake. On the other hand, employers stand to benefit greatly from classifying their employees as independent contractors and may intentionally bend the rules.
In all fairness, having employees does increase the cost of doing business. To start, a business with even one employee is required to carry costly workers’ compensation insurance to cover on the job injuries. But a bigger reason to avoid hiring “employees,” is that employers must also pay overtime, employment taxes and costs associated with administering payroll, whether it be a software program or another employee. Again, depending on the size of the company, it may also be required to provide healthcare benefits to its employees, the cost of which can eat up a big chunk of the operating budget. Finally, purchasing the necessary equipment for your employees to perform their job can be quite expensive depending on the industry.
Yet, you really can’t do business without employees. So, what is a business owner to do? Well, all too commonly, they respond to the financial burden by hiring “independent contractors” and convincing these workers that’s what they are. These workers will often be paid in cash or by check without any tax deductions and receive a 1099 at the end of the year. They are responsible for setting aside their own taxes. These workers aren’t covered by workers compensation and don’t receive any health insurance. They are often required to buy their own cell phones and computers for work tasks. and don’t get paid overtime. At the same time, these workers are subject to their employers’ whims. They are scheduled to be in the office for set hours each day. The work they perform is at the heart of the business and the employer controls every aspect of how and when that work is performed.
If nothing about this dynamic sounds independent to you, you are right. While there is no black and white rule for whether a worker is an employee or an independent contractor, California apples the following factors when determining if a worker has been misclassified.
- Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
- Whether or not the work is a part of the regular business of the principal or alleged employer;
- 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 or her task or his or her employment of helpers;
- Whether the service rendered requires a special skill;
- 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 or her 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; and
- Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.
No single factor is determinative but instead, must be viewed in the totality of the circumstances. However, the most significant factor to consider is whether the employer has control over the worker as far as what work is done and how. If you think you have been improperly classified as an independent contractor and lost wages as a result, contact an attorney immediately for a consultation. Remember, just because your employer says you’re an independent contractor, doesn’t make it so.