According to Yahoo, about 15% of the workforce in the United States are independent contractors. Employers often categorize workers in this way because it saves them money. They are not responsible for offering benefits, such as unemployment or workers’ compensation, and they are not liable to pay employment taxes.
The problem becomes too many employers wrongly categorizing workers as independent contractors. California law is very strict in setting guidelines for employers and preventing such misclassifications. Still, it can happen, so understanding the rules can be helpful to ensure your employer is not wrongly labeling you as an independent contractor.
The ABC test
California has an ABC test to determine whether a worker is an independent contractor or an employee. This test considers three factors: control, business nature and customarily engaged.
Independent contractors have a higher degree of control over their work compared to employees. If the hiring entity doesn’t dictate how, when and where they perform the work, the worker is more likely to be an independent contractor.
The work an individual performs must be outside the usual course of the hiring entity’s business. For instance, if a bakery hires a plumber to fix a leak, the plumber could be an independent contractor because plumbing is not part of the bakery’s primary business. However, if the person is a baker, then they are not likely an independent contractor since baking is the company’s main business.
To be an independent contractor, the worker must engage in an independently established trade, occupation or business of the same nature as the work he or she performs. This means the worker should have their own business, with an established reputation and clientele.
Consequences of misclassification
Misclassification of workers can lead to legal consequences. Employers who misclassify employees as independent contractors may face penalties, fines and potential legal action.
Both parties should clearly define their working relationship in a written agreement. This agreement should outline the nature of the work, payment terms and other relevant details. It also must comply with California’s guidelines to ensure compliance with the law and to foster fair and transparent working relationships.