Independent Contractor or Employee? That is the Question!
Whether to hire someone as an independent contractor or an employee can be a difficult question. As the person making payment of the wage, you are ultimately the one on the hook if the IRS, Franchise Tax Board, EDD or a lawsuit from the individual comes-a-knockin’. The results of responding to any of these situations can be financial devastating. There will be back taxes, back wages (unpaid overtime, rest and meal breaks too), and, in some cases, attorneys fees paid to the other party (in addition to your own attorney fees.) Thus, this decision should not be taken lightly. Nor should it be based upon concepts of “this is how its always been done,” “I know other companies that do it this way,” or “this person won’t want to work for me if they are an employee.”
In addition to the issue already presented, question who will be responsible for any negligent conduct, and if you are, have you exposed your home and savings to liability?
First, we must all understand that it is neither the employer nor the worker determines the classification of a person working (independent contractor, employee –exempt or non-exempt.) Determination is done by the labor code and by a judge. Remember, when a judge decides, it is at the end of the lawsuit. If you guess wrong, its expensive.
The basic test for determining whether a worker is an independent contractor versus an employee is whether the principal has the right to direct and control the manner and means by which the work is performed. In essence, control is the motivating factor. How control is considered is by analyzing “control” and considering the secondary factors that serve as evidence of the existence or nonexistence of the right of control. The secondary factors are based on common law as developed in past court cases and administrative hearings.
A list of the factors follows. Not any one of them is controlling, only one needs to be met. The finder of fact will look at the totality of the circumstances:
- 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.
The best first step is to conduct an audit of your employees and independent contractors with a lawyer. Assess where these workers fit in and then make changes.
If you want to learn more about the differences between an independent contractor and an employee contact us at:
2070 Pioneer Court
San Mateo, CA 94403
McDowall Cotter provides comprehensive legal services in three areas of practice: civil litigation; business; and wealth preservation. To learn more visit us at https://www.mcdlawyers.net. We are a San Mateo based law firm and for more than 50 years, McDowall Cotter’s chief objective has been to deliver exemplary legal services that are personalized, effective and efficient.