How To Register As An Independent Contractor In California

California independent contractor law employee

A California independent contractor has unlike legal rights and obligations than an employee.

The distinction betwixt these arrangements can take dramatic consequences for workers and companies.

According to an article from the Los Angeles Times, the hiring of California workers as contained contractors has recently "exploded."

The article cites a 2016 written report by economists that estimates that twelve and a half meg people, or 8.4% of the U.S. workforce, are now deemed, independent contractors.

Generally speaking, the departure between independent contractors and employees in California is whether or not the entity paying for services hasthe right to control or direct the manner and means of piece of work (disposed to signify an employment human relationship), or whether the person providing the services hasindependently made the decision to get into business for himself or herself (suggesting an independent contractor relationship).

The determination of each corresponding status can exist particularly catchy because the definitions, criteria, and factors that courts and federal and state agencies apply to determine employee or independent contractor status tin vary from ane context to another.

For example, when an employer is determining what sort of IRS tax forms it must prepare, information technology must consider that the IRS looks to common law definitions of employee and independent contractor in making the conclusion.

This method of classification is slightly different than the method used in federal cases, which applies what is unremarkably referred to as the "economical reality" examination in determining a worker'southward status.

However, when the question before a courtroom is whether or not a worker is entitled to the protection of California'due south not-bigotry laws, then state police, as well as another set of factors would use in making the determination.

Our CA employment lawyers will explain what you should know well-nigh California misclassification and contained contractor police force.

For immediate assistance, please don't hesitate to give united states of america a phone call at (415) 508-7786 or submit the brusk form below:

Independent Contractor vs. Employee in California

In improver, California courts apply a unlike set up of standards when determining whether or not a worker is an employee or an independent contractor for each case, depending on the purpose of the determination.

For example, a different ready of standards applies for cases under California's workers' compensation laws as opposed to wage and hour laws, and for purposes of determining the following:

Unemployment insurance benefits,
Disability insurance; and
State income tax withholding.

Although the specific tests applied under federal and country laws differ, the factors in those tests are oft confusingly similar to each other.

They may even overlap or repeat.

Furthermore, the application of the relevant factors in any of these tests to the circumstances of a particular example can be extremely fact-specific.

At that place may be some factors suggesting a California worker is an employee and others suggesting he or she is an independent contractor.

It is even possible that a worker tin can be considered an contained contractor for purposes of IRS tax filing, but they are considered an employee under California'southward wage and hours laws.

The contempo California Supreme Courtroom decision in Dynamex 5. Superior Court of Los Angeles helps decipher some of the confusion around what laws and factors apply in the context of wage and hour laws, just information technology leaves other questions unanswered.

We'll further discuss theDynamex case and how information technology applies in Chapter 3 below.

Independent Contractors in California

Today, over 53 million people are classified equally independent contractors, just many of these workers take been improperly identified.

Why is this?

Unfortunately, employers often stand up to salvage money by misclassifying their employees as independent contractors, equally it means they don't have to provide equally many benefits and protections.

What'due south the difference between an independent contractor and a regular employee?

Independent contractors take, in theory, more than "independence" than standard employees.

The usual definition of an independent contractor is someone who is in business organisation for him or herself, and not for an employer or supervisor.

Traditionally, independent contractors in California have the rights to decide when and where they piece of work, set their ain fees, have multiple clients, have their own tools/materials, provide skills or expertise that is non role of a company'due south usual repertoire, etc.

In other words, an independent contractor is his or her own dominate. A company might hire an independent contractor to perform piece of work for the company, simply that doesn't necessarily make the contractor an employee of that company.

When determining whether or not a worker is an independent contractor or an employee in California, it is important to see how much control a company has over the worker; the greater the control, the greater the likelihood the worker should exist classified every bit an employee. The greater the independence, on the other mitt, the greater the likelihood that the person is a contractor.

Nonetheless, despite having greater autonomy, independent contractors don't savor the same rights under California constabulary as employees. They can be fired far more easily, and aren't entitled to overtime pay or even the minimum wage. They may exist required to piece of work long, unbroken hours without extra bounty.

They are ineligible for unemployment insurance, and they are not protected past federal and country antidiscrimination laws. Employees, on the other hand, are protected by land and federal law: they must exist paid at least the minimum wage, they are entitled to receive overtime, and they're eligible for unemployment insurance.

Other benefits and protections bachelor to employees only not to independent contractors include:

Retirement and health benefits;
FICA tax payments; and
Workers' bounty insurance.

Essentially, being misclassified as an independent contractor when you are performing the work of an employee is a serious violation of your rights.

Such a misclassification has the potential to deprive you of substantial wages, not to mention basic employee rights.

How practise I know if I'm an contained contractor or an employee in California?

Y'all are probably an employee if:

You are paid by the hr
You work total-time for the company
You are closely supervised by the company
Yous received training from the company
Y'all receive employee benefits
Your company provides the tools and equipment needed to work
The services you provide are an integral office of the company's business concern
You lot are permanent (the more permanent y'all are the more information technology looks like y'all are an employee)

While these are useful indicators, you do not need to meet all of the above factors to be an employee. Please contact an experienced employment law attorney to exist sure of your classification.

You are probably an contained contractor if:

Y'all are paid by the job
Yous ready your own working hours
You provide the tools and equipment needed to do your job
You work for more than ane visitor at a time
You pay your own business and traveling expenses
Y'all hire and pay your ain assistants
Yous can earn a turn a profit or suffer a loss as outcome of your work for the company
Y'all operate a truly independent business

If you accept questions about whether or not you qualify every bit an employee or an independent contractor under California police, please contact united states for a consultation.

The distinction is non always articulate-cutting, and many employers take advantage of the ambivalence around the two classifications in gild to avert their obligations. Ane of our experienced San Francisco employment attorneys will be able to advise you as to your condition and recommend a course of action if you've been misclassified.

Which industries have been hardest striking by independent contractor misclassification?

Independent contractor misclassification occurs across all industries, but some are more than prone to it.

A written report on independent contractor misclassification by NELP (National Employment Law Project) explains that the post-obit industries tend to have higher rates of independent contractor misclassification:

Structure,
Technology and Computers,
Real Estate,
Drivers,
Janitorial, and
Domicile Intendance.

A contempo and very prominent example of the employee vs. independent contractor misclassification debate is that of Uber, the San Francisco-based driving service. Uber has always maintained that its drivers are independent contractors, considering they drive their ain cars, set their own hours, and are not supervised on the job.

Many states have upheld Uber's nomenclature when it has been disputed past drivers. Notwithstanding, California'south Labor Commissioner recently ruled that Uber drivers should be classified as employees.

Why?

Because Uber provides them with equipment (namely iPhones), monitors their operation via customer reviews, sets fees and pay rates without input from the drivers, and did not hire the drivers due to any specialized or unusual skill.

What can I do if I've been misclassified?

Independent contractor misclassification can be extremely costly to you.

Oft, misclassified employees are owed thousands in overtime pay or unpaid minimum wages. Because ane factor alone does not determine your status as an employee or contained contractor, determining your true nomenclature can be tricky.

The courts look at all the relevant details to determine the advisable classification and, even then, disagreements may ascend.

If y'all suspect that you lot have been improperly classified as an independent contractor, y'all could be entitled to recover damages. Please contact us for a free consultation. One of our employment attorneys will be able to discuss your misclassification and address your options.

Why it Matters

independent contractor vs employee california

The question of whether a California worker legally qualifies as an employee or an contained contractor can determine the result of many other legal problems.

It is frequently, therefore, the single virtually of importthreshold question when information technology comes to employment cases.

Nether both federal and California law, employers have fairly extensive obligations and duties to workers who are classified equally employees.

These include requirements for non-discrimination, non-retaliation, paying minimum wages, paying diverse taxes and insurance (such every bit social security, unemployment, and workers' compensation), meeting sure minimum safety requirements, and complying with other requirements such equally minimum wage, overtime pay, meal periods and remainder breaks.

Independent contractors in California are non generally entitled to all the same protections as employees.

For example, independent contractors must not just pay their own payroll taxes and self-employment taxes, merely they are also responsible for all the other directly and indirect costs of conducting business themselves as well as for the risks and liabilities that attend their work.

Employers who want to avoid the costs and liabilities associated with beingness an employer may exist motivated either to improperly classify employees as independent contractors or to take elaborate steps in an endeavour to restructure their employee relationships equally independent contractor arrangements.

As recognized by the court inDynamex, "When a worker has not independently decided to engage in an independently established business organization simply instead is simply designated an independent contractor by unilateral action of a hiring entity, there is a substantial risk that the hiring business is attempting to evade the demands of an applicative wage social club through misclassification." Dynamex, 74.

It is not just the employers and workers who are impacted by this. As noted past the L.A. Times, "the misclassification of workers as independent contractors costs the state roughly $7 billion in lost payroll taxes each year."

Furthermore, as the court inDynamex noted, the wage and hour laws adopted past California are meant non only to ensure workers maintain a basic subsistence standard of living but also to shield the public from begetting the full fiscal responsibility for workers stuck in unhealthy or unsafe conditions or earning substandard wages.

IRS Grade 1099 or West-ii?

Nether federal law, any business entity hiring a worker needs to make up one's mind the nature of the business organisation human relationship, whether an employee or contained contractor,at the outset in order to comply with the federal tax code.

Under federal tax law, employers must prepare and provide employees with an IRS Form W-2.

For independent contractors, however, an entity would instead consummate an IRS Grade 1099-MISC.

The IRS looks to common law tests to make up one's mind whether or not someone is an employee or an independent contractor.

The mutual law test requires examination ofall show of the caste of control and independence in the relationship.

The facts would be examined as they relate to the following 3 categories:

Behavioral Control

To what extent does the business concern have a right to directly and control what work is accomplished and how the work is done, whether through instructions, training, or other means?

Someone who is required to complete assignments in a certain way at a sure place and time is more than likely to be an employee than an independent contractor. If the entity receiving services provides training about required procedures and methods this indicates the business wants the work done in a sure way. Again, this kind of worker is more likely to be deemed an employee.

Financial Control

To what extent does the business organisation have a right to straight or command the financial aspects of the worker's job?

In this expanse, the IRS would examine:

Does the worker have unreimbursed business expenses? If the worker pays his or her own expenses, that is more to be expected of an independent contractor than an employee.
Does the worker invest in his or her ain tools or facilities used in performing the services? A significant investment by an individual into his or her own facilities, equipment, tools, or supplies suggests the individual is in business for himself or herself rather than an employee.
Does the worker make his or her services available to the public or relevant market generally? If so, that would suggest someone in business for themselves.
How is the worker paid by the business? For example, someone in business concern for themselves may send out invoices to collect payment for services. An employee may receive a cheque at regular intervals.
Can the worker realize a turn a profit or incur a loss? The ability of an individual to realize a turn a profit or incur a loss suggests the person is in business for themselves.

Relationship of the Parties

How do the two parties perceive their relationship?

Are there written contracts describing the relationship the parties intend to create? Note that this factor is more important in the context of IRS rules than information technology is nether California wage and hr laws. Under California wage and 60 minutes laws, the existence of an agreement that labels the relationship as an independent contractor i is givennada weight. See Estrada v. FedEx, 154 Cal.App.4^th ane (2007). For the IRS, even so, it can be apregnant. Run across IRS Publication 1779.
Does the business provide the worker with benefits, such as health insurance, a alimony plan, vacation leave or ill pay? Doing and then suggests an employer-employee relationship.
How permanent or temporary is the relationship? A relationship that is expected to be long-term and continuing is a feature of an employer-employee relationship.
Are the services performed by the worker as well a key aspect of the regular business of the hiring visitor? Consider, for example, an overnight or same-day delivery service. A driver performing delivery services in this context is performing a service that would exist a key aspect of the regular business of the hiring company.

If you are not sure whether or not you or your worker should be classified as W-ii or 1099 for purposes of federal income tax withholding, yous may asking the IRS to brand the determination for you.

This is done past filing a asking on IRS Form SS-viii.

The IRS will admit receipt of your Form SS-8 and assign information technology to a technician to review, apply the constabulary, and decide.

This may accept upwardly to six months.

The Dynamex Decision and the ABC Test under California Law

In April 2018, the California Supreme Court decided the case ofDynamex Operations West, Inc. five. Superior Court of Los Angeles Canton. Docket No. S222732.

This decision marked an important change in how determinations of the employee-independent contractor question will be made by California courts for certain cases going forwards.

In fact, the decision adopted a standard thatpresumes that workers are employees unless the employer tin establish otherwisewhen it comes to cases brought under the country'due south wage orders.

The Dynamex Determination

Dynamex is a nationwide same-day courier and delivery service with several business centers in California.

Prior to 2004, Dynamex classified its drivers in California as employees.

In 2004, however, Dynamex restructured its relationship with drivers to save the company money.

Dynamex's policy after 2004 was that drivers would be treated as independent contractors required to provide their own vehicles and pay their own transportation expenses, including costs for fuel, maintenance, and liability insurance.

Drivers were still expected to wear Dynamex shirts and badges and sometimes to braze Dynamex decals to their vehicles.

At the same fourth dimension, drivers were given the freedom to choose their own routes and delivery sequences besides as to hire other persons and make deliveries for other delivery companies.

In 2005, ii of Dynamex's drivers filed a class-action lawsuit claiming that they and other drivers were improperly classified every bit contained contractors and that Dynamex was, therefore, violating diverse requirements of the California Labor Code and state wage orders.

The case went before the California Supreme Court with the question of whether the trial court's determination to certify the lawsuit as a form activeness was proper.

At issue was the question of whether, in certifying the form-action condition of the case, the trial court had identified the right standard for classifying workers as either contained contractors or employees.

The California Supreme Court held that the trial court'southward reliance on the fairly broad employment language of the wage orders every bit advisable in classifying workers.

What is the wage club?

Wage orders are employment regulations that explicate and describe the wage, hour, and working conditions requirements in specific industries.

Wage orders are considered "constitutionally-authorized, quasi-legislative regulations that take the force of law." Dynamex, 3 at fn3.

Wage orders are published by the Department of Industrial Relations.

Nether the wage orders, there is no actual definition of an independent contractor.

Rather the orders generally specify that they "apply to all persons employed" in the relevant industry, with some exceptions.

An employee is generally defined as "whatsoever person employed by the employer." An earlier example,Martinez v. Combs, held that there were three alternative definitions of "employ" under the wage orders: (a) to exercise control over the wages, hours, or working conditions, or (b) to suffer or let to work, or (c) to engage, thereby creating a common constabulary employment relationship." Dynamex, 4.

Clearly, these culling definitions are very broad and the "suffer or permit to work" definition has the potential for swallowing any independent contractor stardom entirely.

The court in Dynamex, therefore, found that the "suffer or permit to work" linguistic communication should be viewed equally a "term of art that cannot be interpreted literally" to include types of private workers that have "traditionally been viewed every bitgenuine independent contractors who are working only in their own business." Dynamex, 7.

This is one reason the wage order definitions cannot be seen equally encompassingall workers inside their sweep, and why the presumption that a worker is an employee may exist rebutted by the employer in certain circumstances.

The circumstances under which the employee presumption may exist rebutted is generally referred to every bit the "ABC" test. Dynamex, seven.

The ABC Examination for Independent Contractors in California

The California ABC test provides that:

A California worker is properly considered an independent contractor to whom a wage lodge does not apply only if the hiring entity establishes all of the post-obit:

(A) The worker is free from the command and management of the hirer in connection with the functioning of the work, both nether the contract for the performance of such piece of work and in fact;

(B) The worker performs piece of work that is exterior the usual course of the hiring entity'southward business;and

(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

Dynamex, 7.

The presumption of an employment human relationship and the ABC test thus applies in cases brought nether California's wage orders.

But what about cases brought under California's Labor Lawmaking or its Fair Employment and Housing Act? The question of whether the same standard applies in those kinds of cases is not one that the courtroom in Dynamex explicitly reached.

Equally a event, it is not yet clear whether the presumption of an employment human relationship and the ABC test might apply or should exist applied in contextsbeyond the wage orders.

However, the Dynamex Court did state that when it comes to the question of workers' classification as employees or independent contractors, the proper analysis isnot limited to the traditional common law examination that was previously enunciated in S.G. Borello & Sons 5. Dept. of Industrial Relations.

Instead, the Court held that determining the appropriate nomenclature standard calls for "application of astatutory purpose standard" to determine which factors "best effectuate… the underlying legislative intent and objective of the statutory scheme at result." Dynamex, 33.

This lays a strong foundation for future courts to find that the statutory purposes backside California'south Labor Code and/or Fair Employment and Housing Act require the application of the broader "suffer or permit to work" standard, together with its corresponding presumption of an employment relationship.

Classification as an Contained Contractor under the Off-white Employment and Housing Act

California'due south Fair Employment and Housing Act, or "FEHA," is the statute that prohibits discrimination in employment practices on the footing of:

Race,
Religious creed,
National origin,
Ancestry,
Inability (physical or mental),
Medical condition,
Genetic information,
Marital status,
Sexual practice,
Gender,
Gender identity,
Gender expression,
Age,
Sexual orientation, or
Military machine and veteran status.

Authorities Code §12940 – 12952. The distinction between employees and independent contractors is important under FEHA considering the anti-bigotry protections provided by FEHA embrace employees but non independent contractors.

"Persons providing services pursuant to a contract"are protected from unlawful harassment nether FEHA, Government Code §12940(j)(1), but they are non protected from discrimination.

FEHA defines a "person providing services pursuant to a contract" as someone who meets all the post-obit criteria:

The person has the right to command the performance of the contract for services and discretion as to the manner of performance.
The person is customarily engaged in an independently established concern.
The person has control over the time and places where the work is performed, supplies the tools and instruments used in the work, and performs piece of work that requires a detail skill non ordinarily used in the course of the employer's work.

In 2012, an African-American steel plant worker won a $25 million jury verdict confronting his employer ArcelorMittal for the company's failure to address a hostile piece of work surround that included racial epithets, vandalism, and graffiti directed toward the worker.

One of the incidents described by the employee'due south complaint was finding a blimp monkey hanging from a noose in his automobile.

Turley v. ISG Lackawanna Inc. et al., example number ane:06-cv-00794, in the U.Due south. Commune Court for the Western Commune of New York.

Authorities Lawmaking § 12940(j)(five).

"Economical Realities" Examination nether the Fair Labor Standards Human action

There are some cases where a California court might be required to apply federal law to determine a worker's proper classification.

Under the federal Fair Labor Standards Human activity, or "FLSA," the examination for whether a relationship is one of employer-employee or contained contractor is non determined by the same common law standards used past the IRS.

U.South. Department of Labor, Wage, and Hour Partitioning Fact Canvass 13. The FLSA exam is generally referred to equally the "Economic Realities" test.

The factors considered significant under "Economic Realities" is:

The extent to which the services are an integral part of the principal's business organisation. Equally used here, "principal" basically means the entity that is hiring the worker.
The permanency of the relationship.
The corporeality of the alleged contractor'southward investment in facilities and equipment.
The nature and degree of command by the master.
The alleged contractor's opportunities for turn a profit and loss.
The alleged contractor'due south opportunities for turn a profit and loss.
The degree of independent business system and performance.

Under the economic realities examination, there are some factors, however, that arenon considered material.

Thefactors to which the economic realities test gives no weight are:

The identify where the piece of work is performed.
The presence or absence of written employment or contracting agreement.
Time and mode of payment.
Whether or non an declared independent contractor is licensed by state or local regime.

In California, the "Economic Realities" test is rarely applied because California's Off-white Employment and Housing Act, Labor Code and wage rules are mostly much more than advantageous to workers than FLSA.

The Dynamex decision is likely to skew the equation even more than to workers' favor in California.

Misclassification, Penalties, and Remedies

Simply as there are numerous contexts nether which the classification of a California employee or independent contractor becomes important, at that place are also a variety of penalties to which an employer might be subject for misclassification, and a number of ways a misclassified employee might exist able to recover damages.

Penalties

Under California Labor Lawmaking § 226.8, it is unlawful for any employer to willfully misclassify an private as an independent contractor.

Engaging in willful misclassification can subject field an employer to a civil punishment by the Labor and Workforce Development Bureau of anywhere from $five,000 to $15,000 for each violation.

"Willful misclassification" means "avoiding employee status for an private byvoluntarily andknowingly misclassifying that individual as an independent contractor." Labor Code §226.viii(j).

If the Labor and Workforce Evolution Agency, or any court, finds that an employer has engaged in a "pattern or do" of misclassification violations, the employer may be subject to ceremonious penalties ranging from $10,000 to $25,000 per violation.

The penalties applied by the IRS tin be fifty-fifty heavier.

Any person who misclassifies an employee as an independent contractor for the purpose ofwillfully attempting to evade or defeat any taxunder the Internal Acquirement Code may exist plant guilty of a felony, fined upwardly to $100,000 and sentenced up to five years in prison house.

26 The statesC. §7201. The IRS may even impose penalties for misclassifications that are unintentional. Come across 26 The statesC. §3102(f), §3509.

Remedies for workers

Workers who have been misclassified as independent contractors and who should accept been classified as employees are entitled to recover all the benefits to which they would have been entitled had they been properly classified. Run into Labor Lawmaking §2802(a).

These benefits may include payment for back pay, plus interest, on account of:

Bereft minimum wage,
Overtime,
Missed meal breaks; and/or
Residuum periods.

In some cases, employees may too recover attorney fees and courtroom costs.Labor Lawmaking §2699(g).

An employee misclassified as an independent contractor who gets laid off may still file a claim for unemployment insurance with the Employment Development Section (EDD).

If the EDD determines the employee has been misclassified, he or she may still receive unemployment benefits and the employer could be fined.

Similarly, misclassified workers who are hurt on the job may nonetheless file a merits for workers' compensation with the Department of Industrial Relations Division of Workers' Compensation.

Uninsured employers may be punished with fines upwardly to $10,000 and/or imprisonment up to one year.

Contact a California Employment Attorney for a Gratis Consultation

Please don't hesitate to reach out to our experienced employment lawyers in California for assistance.

If y'all take any questions or would similar to schedule a case consultation, call the states at (415) 508-7786 today.