Independent Contractor Misclassification

Independent Contractor Misclassification labor law office

Employee vs. Independent Contractor

Sometimes businesses prefer to classify people who work for them as independent contractors, to avoid paying overtime, taxes or for other reasons. Whether an employee should be classified as an employee or an independent contractor comes down to a list of factors.

There is no set definition of an “independent contractor”. The analysis of whether a worker is an employee or an independent contractor starts with the presumption that the worker is an employee. The actual determination of whether a person is an employee or independent contractor depends on a number of factors, none of which is controlling by itself.

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Under the “economic realities” test adopted by the Supreme Court the most significant factor to be considered is whether the person to whom service is rendered has control or the right to control the worker both as to the work done and the manner and means in which the work is performed. Other factors that may be considered depending on the issue involved are:

  • 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.

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It is unlawful to classify an employee as an independent contractor to avoid employment laws. On October 9, 2011, Governor Brown signed SB 459, which imposes a civil penalty for each violation of willful misclassification of an individual as an independent contractor, or to willfully charge a misclassified contractor a fee or make deductions for goods, materials, space rental, services, government licenses, equipment maintenance or fines. The bill creates civil penalties of between $5,000 and $25,000 per violation.

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