While most employers prefer to hire independent contractors rather than employees, you can expose yourself to substantial liability by incorrectly classifying the people who work for you.
The Division of Labor Standards Enforcement (the “DLSE”) is the California department tasked with the responsibility of ensuring that workers are paid fairly for their labor. The DLSE is also responsible for enforcing the state’s numerous labor laws.
So how can you tell whether your workers are employees or independent contractors? Unfortunately, there is no clear-cut answer.
To start, the DLSE first begins by presuming that all workers are employees (Labor Code Section 3357). To rebut this presumption, the DLSE considers a number of factors such as:
- Whether worker is engaged in an occupation or business distinct from that of the alleged employer;
- Whether the alleged employer or the worker supplies the instrumentalities, tools, and the work location for the worker;
- Whether the service rendered requires any special skills;
- Whether the worker possesses any required advanced degrees or licenses for the job (for example a medical or legal degree);
- 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);
- Whether or not the work is a part of the regular business of the alleged employer;
- The worker’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
- The worker’s opportunity for profit or loss depending on his or her managerial skill; and
- The kind of occupation, with reference to whether, in the local area, the work is usually performed under the direction of an alleged employer or by a specialist without supervision.
Even where the alleged employer does not control the worker’s work details, an employer-employee relationship will be found if (1) the alleged employer retains pervasive control over the operation as a whole, (2) the worker’s duties are an integral part of the operation, and (3) the nature of the work makes detailed control unnecessary. (Yellow Cab Cooperative v. Workers Compensation Appeals Board (1991) 226 Cal.App.3d 1288)
While the parties’ subjective belief of whether they are creating an employer-employee relationship may be considered a factor in determining the type of relationship the parties had, it is by no means determinative.
On the same note, simply calling someone an “independent contractor” or issuing them a 1099, rather than W-2, tax forms has no bearing on the worker’s classification.
So why do most employers prefer independent contractors? Unsurprisingly, the answer comes down to money: by hiring independent contractors, employers can avoid paying payroll taxes, minimum wage, and/or overtime, refuse to provide meal periods and rest breaks, and fail to reimburse workers for any business expenses incurred in performing their jobs.
If you have any questions about whether you’ve hired an employee or an independent contractor, or if you need help defending a claim before the DLSE, contact the Palm Desert Law Group today to discuss the unique circumstances of your business. We are here to help.