As an employer in California, it is essential to accurately classify your workers as either employees or independent contractors. Misclassification can result in significant legal and financial consequences, including fines, back taxes, and potential lawsuits. In this article, we will explore the criteria for determining worker classification in California and provide guidance on how to properly classify your workers to avoid misclassification.
According to the California Labor Code, a worker is generally considered an employee if the employer has the right to control the details of how the work is performed. This includes not only what work is done, but also when and where it is done (California Labor Code § 3351). On the other hand, an independent contractor is someone who is in business for themselves and has the right to control the means and manner of their work (California Labor Code § 3353).
However, simply labeling a worker as an independent contractor or providing them with a 1099 form does not necessarily make them one. In determining whether a worker is an employee or independent contractor, California courts often consider a number of factors, including:
- The degree of control the employer has over the worker’s work (S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341)
- The worker’s level of skill and expertise (S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341)
- Whether the worker is economically dependent on the employer (S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341)
- Whether the work is a key aspect of the employer’s business (S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341)
- Whether the worker has a separate place of business (S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341)
- The duration of the work relationship (S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341)
In recent years, California courts have also adopted the “ABC test” for determining worker classification. Under this test, a worker is considered an employee unless the employer can prove that the worker is:
- Free from the control and direction of the employer in connection with the performance of the work, both under the contract for the performance of the work and in fact (Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903)
- Performing work that is outside the usual course of the employer’s business (Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903)
- Customarily engaged in an independently established trade, occupation, or business of the same nature as the work being performed (Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903)
If a worker does not meet all three of these criteria, they are considered an employee and must be treated as such for purposes of wage and hour laws, including overtime and minimum wage requirements.
It is important to note that worker classification is not always clear-cut and may depend on the specific facts of each case. In some cases, a worker may be considered an employee for certain purposes (e.g. wage and hour laws) and an independent contractor for others (e.g. unemployment insurance).
To avoid misclassification and the potential legal and financial consequences, California employers should carefully consider all of the above factors when determining how to classify their workers. Employers who are uncertain about how to properly classify a worker should seek advice from an experienced employment attorney. Additionally, employers should consult with payroll and tax professionals to ensure that they remain in compliance with applicable laws and regulations.
Finally, businesses should review their worker classification guidelines regularly to ensure that they are up-to-date with any changes in the law. Doing so can help prevent costly liability, as well as protect workers from potentially unfair treatment. Companies should also develop clear policies and procedures for classifying workers and adhere to them consistently. With the right preparation and guidance, employers can ensure that their worker classification practices are compliant with California law.