October 25, 2022
Using a true independent contractor can relieve businesses of the many burdens imposed by California and federal labor laws, but simply calling someone an independent contractor does not make them one in the legal sense. What’s more, it could affect them. Mislabeling a worker as an independent contractor creates a tax and labor penalty liability due to the failure to meet the many legal obligations owed to an employee, such as wage and hour requirements.
California courts and administrative agencies have generally applied common law principles (policies not written but followed by custom) in determining independent contractor status. However, there have recently been significant advances in independent contractor legislation.
The Los Angeles Superior Court adopted a rigid “ABC test” to distinguish an employee from an independent contractor. However, the test was initially limited to the Industrial Welfare Commission (IWC) Wage Orders application. The ABC test was codified and expanded, making it the general test to apply wage orders and unemployment and work insurance codes.
How to know whether you are an independent contractor or an employee?
The most important factor involves the independent contractor’s right to control the manner and means of achieving a result, even if the contractor does not exercise that right in every detail.
Under the ABC test, you are presumed to be an employee unless your company can prove that:
- You are free from the control and direction of your contractor concerning the execution of the work
- You perform work that is outside the usual course of your employer’s business
- You are usually engaged in an established trade, occupation, or independently established business of the same nature as the work performed.
If your case is not one of those previously mentioned, you must be classified as an employee.
The consequences of misclassification
It is estimated that up to $1.5 billion in income, Social Security withholdings, and unemployment tax income are lost annually due to the misclassification of up to 3.5 million workers as independent contractors.
If you believe that you have been classified as an independent contractor when, you are actually an employee, do not hesitate to contact us. Demand your rights!
