Traditionally, independent contractors in California have the right to decide when and where to work, set their own fees, have multiple clients, have their own tools/materials, provide skills or expertise that are not part of a company`s usual repertoire, etc. Germann v. Workers` Comp. Appeals Vol. (1981) 123 Cal.App.3d 776, 783 [“Not all of these factors are of equal importance. The litmus test is the right to control, not only in terms of results, but also in the way the work is done… In general, however, individual factors cannot be applied mechanically as separate tests; they are intertwined and their weight often depends on certain combinations.”]. Many employers under the misconception that a person can be classified as an independent contractor by signing an agreement or working in a location other than the employer`s normal establishment. This is simply not the case.
Note, however, that even if this test is not fully completed, the employee will still be considered an employee if they meet the IRS normal classification test. Conversely, it is conceivable that an employee may meet the definition of a statutory employee for federal tax purposes, but still be considered an independent contractor within the meaning of California law. The 4. In September 2020, Governor Gavin Newsom signed a major restructuring of the law into AB 2257, which clarified and reorganized exceptions to the ABC test and added new exemptions.35 In contrast, employers are responsible for covering payroll taxes and social security costs and ensuring this worker protection for workers classified as employees. Therefore, classifying workers as independent contractors deprives these workers of workplace protection and entails significant costs, resulting in significant cost savings for employers as they are able to pass on these costs to workers and avoid payments to government tax and social security programs. When an employee is treated as an independent contractor, they often do not track their hours of work. With this in mind, employers may not provide detailed salary statements to their misclassified employees. An employer can be fined or sued if they fail to comply with the california Labor Code`s payroll and record-keeping requirements.210 Of course, these alternative definitions are very broad, and the definition of “suffer or allow to work” has the potential to completely swallow any independent contractor distinction.
See Internal Revenue Service, Publication 15-A: Employer`s Supplemental Tax Guide (2017), available here (Opens in a new window). This guide provides a simplified version of the traditional multi-part IRS test described in Ewens & Miller, Inc.c. Comm`r of Internal Revenue (2001) 117 T.C. 263, 270.↥ Labour Code, § 2775, subd. (b) (3) [“If a court decides that the three-part test in subsection (1) cannot be applied to a particular context for reasons other than an express exception to employment status under subsection (2), then the determination of the status of an employee or independent contractor in that context will instead be governed by the california Supreme Court`s decision in S.G. Borello & Sons. Inc.c. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello).”]. ↥ Companies must weigh all these factors to determine whether an employee is an employee or an independent contractor. Some factors may indicate that the employee is an employee, while other factors indicate that the employee is an independent contractor. There is no “magic” or fixed number of factors that “make” the worker an employee or independent contractor, and not a single factor is alone in this provision. In addition, the relevant factors in one situation may not be relevant in another situation.
According to an article in the Los Angeles Times, hiring workers as independent contractors has recently “exploded.” To address the problem of misclassification and ensure that workers are not deprived of important protections, many states have introduced the ABC test – a strong and protective legal test known for its three nested parts ((A), (B) and (C) – to determine whether a person is an employee or an independent contractor. The ABC test establishes a presumption of employee status unless an employer can meet three factors and demonstrate that the person is truly an independent contractor. .