What is an Independent Contractor vs Employee ?
The IRS defines an independent contractor is an individual in independent trade, profession, or business offering their services to the public. Doctors, accountants, lawyers, contractors, and auctioneers are good examples of independent contractors, according to the IRS.
Independent contractors can also be defined as self-employed individuals who provide services that can’t be controlled by an employer. Employers don’t have the right to dictate the details of how services are rendered when working with independent contractors. If you are told what should be done as well as how it should be done, you are not an independent contractor.
Misclassification of employees as independent contractors
Besides being a regular employee, you can also be a volunteer or independent contractor. Many employers have been guilty of misclassifying employees as independent contractors, given the financial incentives of doing so.
Employers who hire independent contractors aren’t required to pay overtime, payroll tax, reimburse business expenses incurred by workers while doing their jobs or comply with wage and hour laws. Furthermore, independent contractors don’t need worker’s compensation insurance, and employers aren’t liable for payments such as disability insurance, social security, unemployment insurance, among other forms of independent contractor insurance.
California independent contractor law
California has a new law (AB 5 or Assembly Bill 5) that highlights how workers in California should be classified. Assembly Bill 5 was signed into law on 18th September 2019. It makes it easy to differentiate employees from independent contractors by expanding the ABC test application.
ABC test for independent contractors
The ABC test acts as a guide for employers interested in determining if specific workers are considered employees of independent contractors by law. In the US, the ABC test is a prerequisite in the partial or entire determination of workers’ status.
According to the government, a worker is considered an employee by default. Their status changes if they meet specific guidelines. Employers are charged with the responsibility of categorizing their workers correctly or face costly fines.
Background of the AB 5
On 18th September 2019, Assembly Bill 5 marked a new standard for determining independent contractors in California. The law originated from a Supreme Court ruling (Dynamex Operations V. Superior Court case) in April 2018 – one of the most (if not the most) famous independent contractor cases in California.
According to the verdict, the California Supreme Court rejected and reinterpreted the Borello test that had been in use when evaluating whether workers qualified to be independent contractors or employees. In the ruling, the court embraced a new standard of presuming workers are employees first instead of contractors and placing the burden of classification on employers after using a newly adopted ABC test.
Prior to 2004, nationwide courier and delivery service company Dynamex classified its California workers (drivers) as employees. After 2004, all drivers were given an independent contractor status as part of the company’s cost-saving measures. In 2005, Plaintiff Charles Lee sued Dynamex on his behalf and that of drivers in a similar situation alleging that Dynamex misclassified its drivers violating IWC wage Order #9 provisions – the wage order that governs the transport industry.
According to the lawsuit, Dynamex also violated California Labor code (Business and Professions –Code Section 17200) by engaging in unlawful and unfair business practices. The ruling illustrates the process of determining independent contractor status for wage-related orders. However, workers are assumed to be employees unless proven otherwise.
Before AB 5
Legal tests have always existed in regard to classifying workers. Previously, the tests that existed focused on the worker’s rights or type of claim. For over three decades, California courts have used a multi-factor test (Borello) introduced in the Borello v. the DIR (Department of Industrial Relations) case. The Borello test features 11 factors mainly focusing on a company’s control over the manner and means of doing contracted work as well as additional secondary factors like the entity offering working tools and a person’s opportunity for loss/profit.
ABC test factors
The ABC test, as per Assembly Bill 5, is the test used to determine a worker’s employment status in California. According to the test, a worker is considered an independent contractor if the following applies:
- The worker performs their work free of control and direction from the hiring entity. This applies under the performance contract and in fact.
- The worker does work outside the hiring entity’s usual course
- The worker engages customarily in an independently established, occupation, trade, or business similar to the work performed.
1. The control and direction factor
For you to be considered an independent contractor, you must be working free of control and direction. In this regard, the IRS considers financial, behavioral, and relationship control aspects. The IRS also considers the uniqueness of individual cases.
Control and direction factors have been long-standing determinants for independent contractors. Even if you have a contract that states you are an independent contractor, it isn’t proof that you are if you don’t exercise complete control when performing your duties.
2. The “work outside an employer’s field” factor
Unlike the control and direction factor, this factor is new in the classification of independent contractors. The factor can be traced back to the “birth” of the “gig” economy and companies like Uber. Even if you have 100% control over how you work, workers such as Uber drivers work within Uber’s line of business, disqualifying them as independent contractors.
In Uber’s example, workers outside its core business would include workers outsourced to do financial support functions like accounting and payroll or technical business functions like call center and IT work.
3. The “customary engagement” factor
Your line of work should match the task you are hired to do. In California, this requirement makes it even harder for an employee to be misclassified as an independent contractor. Professionals, and licensed ones, for that matter, are the only workers likely to meet this requirement.
Employers are obligated by law to check if their workers meet all the three factors above before considering them as independent contractors. If one or more requirements above isn’t met, a worker is deemed an employee.
The 2nd factor requiring a worker to do work outside the hiring entity’s business is usually the most challenging to satisfy. The 3rd-factor requiring workers to engage in work of a similar nature as the work being performed for a hiring entity eliminates most workers in the gig economy engaging in side jobs.
AB 5 changes
Before AB 5, the ABC test didn’t extend to employer obligations like reimbursing of business expenses and potential recovery of PAGA penalties by employees. AB 5 added Section 2750.3 to the Labor code.
From 1st January 2020, the ABC test will be used to establish worker status. Workers misclassified as independent contractors will use the ABC test going forward to show they are employees and seek reimbursement of business expenses, accurate/complete wage statements, unemployment insurance tax, and workers compensation insurance.
The ABC test exempts a number of occupations. For such occupations, the Borello test applies when confirming a worker’s status as an employee.
Here are some general AB 5 exemptions subject to licensing, among other requirements. They include: doctors (dentists, surgeons, physicians, psychologists, veterinarians and podiatrists), professionals (engineers, architects and lawyers), professional services (such as human resources administrator, graphic designers, marketing, travel agents, fine artists and grant writers), real estate agents, insurance brokers, builders and contractors, commercial fishermen, tow truck drivers (AAA-affiliated), photographers and freelance writers (if they contribute 35+ submissions yearly), manicurists, electrologists and estheticians (licensed), tutors (teaching their own/individual curriculum, not public school), barbers and hairstylists (if licensed and work on their own schedule/rate) and individuals in direct sales (if compensated based on actual sales as opposed to referrals or wholesale purchases.
The ABC test applies to all other occupations including those that were considered as independent contractors in the past, i.e.,
- Truck driver
- Health aides
- Entertainers (Performers, among other entertainment professionals)
- Campaign workers
- Land surveyors, geologists and architects
- Language interpreters
- Rabbis & other clergy
- Exotic dancers
- Gig economy workers (delivery service workers, rideshare, etc.)
- Health care professionals (Like speech therapists, nurse practitioners, optometrists, radiation therapists, physician assistants, occupational therapists, marriage & family therapists, professional clinical counselors (licensed), audiologists, respiratory therapists, and clinical social workers (licensed).
Important: The ABC test doesn’t extend to tort claims as well as claims under California Government Code meant to protect employees against discrimination and harassment.
According to the AB 5, some labor code provisions apply retroactively to existing claims. The law permits actions to the maximum extent in some instances, while other provisions only apply to work on/after 1st January 2020.
The test application is retroactive in regard to wage orders of the IWC and Labor Code violations related to wage orders. The ABC test will apply from 1st January 2020 in regards to Unemployment Insurance Code and every other provision that isn’t related to wage orders. On 1st July 2020, the ABC test will also apply for worker’s compensation purposes.
Independent contractor vs. employee: California Test
California workers must go through a main test and be subjected to other secondary factors before their employment status is established.
The main test assesses the right to direct as well as control a worker. In some cases, such rights may not be evident, creating the need for further analysis using secondary factors considered independently and then as a whole.
Factors to determine if you are an independent contractor in California
- Are you engaged in a specific trade or occupation? Do you offer services to the public or work for two or more companies at a time? Do you have workers? Have you invested heavily in facilities and/or equipment?
- Do you work without supervision?
- What extent of control does your principle have over you? Can they terminate the working relationship at will without liability? Do they tell you how to do your work or establish working hours? Do they require job tasks done in a certain sequence or order?
- Is your work highly specialized or skilled? Are you trained by your principle/payer? Do you perform the services personally?
- Are you given a principle to acquire tools, materials, equipment, supplies, premises, etc.? Do you offer services while in your principal’s premises?
- Are the services you offer repetitive or long-term?
- Are you paid on completion of a project or for the time worked?
- Are the services you offer part of your principal’s business?
- Do your services benefit the principal’s business?
Independent contractor vs. employee: IRS test
To determine if an individual is an independent contractor or an employee, the IRS needs to establish the business relationship that exists between the worker and employer. Generally, workers are either independent contractors or employees. There are 5 main types of workers namely independent contractors, common-law employees, government workers, statutory employees and statutory nonemployees.
When determining if a worker is an independent contractor or employee, all evidence about the worker’s independence and degree of control while offering their services must be considered. The information falls into three main categories, namely:
- Behavior evidence: Does the worker offer services without being controlled by the company? How does the worker do their job?
- Financial evidence: Does the payer control certain aspects of a worker’s job, such as how a worker is paid? Who provides the supplies and tools for the job? Are expenses reimbursed?
- Relationship evidence: Does the worker have a written contract or employee-type benefits like vacation pay, insurance, pension plan, etc.? How permanent is the relationship? Is the work being done a major aspect of the company/business?
All the above factors must be weighed when determining the status of a worker. It’s worth noting that some factors can indicate that a worker is an independent contractor, while other factors indicate otherwise. There’s no magic or a definite number of factors making a worker an independent contractor or employee.
Furthermore, a factor can’t stand alone when making this determination. Also, different factors may gain or lose relevance depending on the situation in question. The most important factor is analyzing every situation in its entirety and considering the extent or degree of control by a payer.
Independent contractor vs employee chart
|Control||Works independently||Controlled by employer|
|Working style||Decides how to work without employer’s/client’s input||Does as instructed by employer|
|Place of work||At liberty to decide where to work from. Can work from client’s premises under special circumstances||Works from employer’s office or as directed.|
|No. of employers||Can work for multiple clients at once||Usually has 1 employer|
|Wages and Hours||Paid as per the contract. No overtime pay||Paid as per federal and state (wage and hour) law. Minimum wage and overtime applicable.|
|Benefits||No employment benefits, worker’s compensation, or unemployment compensation.||Eligible for employment benefits like insurance from the employer. Entitled to unemployment and worker’s compensation.|
|Tax||Not subjected to tax withholdings. Pays self-employment tax.IRS Form 1099 MISC required.||Employer withholds taxes on wages. IRS Form W2 required.|
Turning to the IRS to determine employee status: Independent contractor or employee?
If examining the above three categories of evidence doesn’t make it obvious if a worker is an employee or independent contractor, the IRS can help in determining an employee’s status, especially for tax-related reasons. To do this, you must complete Form SS-8.
Form SS-8 can be completed by a worker or the payer (business or employer). The IRS uses the information provided in the form to determine the status of the worker in question officially. It takes six months or more to get the IRS determination.
After determining a worker’s status, the appropriate forms must be filed and associated taxes paid.
Independent contractor taxes
There are several independent contractor tax forms that must be filled by workers who are independent contractors. They include:
a. Independent contractor W9 form
Workers who are found to be independent contractors must complete Form W9, which is a request for a taxpayer ID no. and certification. Form W9 can be used for requesting the correct TIN (Taxpayer identification number) and name of a worker. A TIN can be an EIN (Employer Identification Number) or SSN (Social Security Number).
b. 1099 form independent contractor
Form 1099 MISC is used by payers when reporting payments made to independent contractors. If a company pays someone who doesn’t qualify as an employee i.e., an attorney, subcontractor, or accountant an amount equal to $600 or more during the year, a Form 1099 MISC must be filed. Independent contractors must get a copy of the form by 31st January of the following year.
If an independent contractor works with other employees or hires subcontractors (other independent contractors), they must be aware of the tax responsibilities (filing and reporting, etc.,) for these workers.
Important: Form 1099 isn’t required in some circumstances highlighted by the IRS.
How to file taxes as an independent contractor
Form 1099 is used to document self-employment income earned by independent contractors. As mentioned above, independent contractors receive a copy of Form 1099 from their clients. The form contains the amount of “nonemployee” compensation paid during a given year if the amount is $600 or more.
Independent contractor taxes are filed after receiving a form 1099. Independent contractors who qualify as sole proprietors should total their income on a 1099 form and enter the income on Schedule C to determine income tax. Compensation information on form 1099 is also used to determine self-employment tax for sole proprietors and self-employed individuals with other structures.
Filing can be done electronically via the IRS’s FIRE system.
How do independent contractors pay taxes?
Independent contractors are at an advantage in regards to paying taxes given they incur a tax bill that is half what employees pay.
As an independent contractor, you should send your own withholding tax as quarterly estimated tax. The withholding has to cover income and self-employment taxes. Generally, taxes are due on 15th of every quarter (January, April, June, and September).
Although independent contractors may not be required to pay quarterly estimated tax, they must withhold a certain amount during the year or face a tax penalty. Different states have different withholding requirements. It is therefore recommendable to consult a tax professional.
Independent contractor tax deductions: What can I deduct as an independent contractor?
You may be eligible for a home office deduction if you are an independent contractor who works at home. 50% of self-employment tax is also deductible. Other applicable deductions may include mortgage and rent interest (if your work in a rented or mortgaged premises), utilities, business supplies, etc.
How much do independent contractors pay in taxes?
Independent contractors are considered self-employed when calculating taxes. The amount they pay in taxes depends on their net income, which is calculated by subtracting deductibles from revenue. The IRS has a worksheet for estimating taxes. The worksheet should be used after gathering information on business expenses.
Misclassification as an independent employee: Tax implications on an employer
If an employee is misclassified with no reasonable basis, the employer may be required to pay employment tax for that worker. If an employer has reasonable basis for classifying a worker as an independent contractor, relief provisions may apply i.e., the employer may be exempted from incurring employment tax expenses for that worker.
To enjoy relief provisions, an employer must file the required information (federal information returns). The IRS has employment tax relief guidelines that employers can use to see if they qualify.
If you are misclassified, you can file Form 8919 to report uncollected Medicare taxes and uncollected social security due.
VCSP (Voluntary Classification Settlement Program)
Taxpayers have the opportunity to reclassify misclassified workers through the VCSP. The program is optional, as the name suggests. Employers have a chance to correct past wrongs for future tax periods. The program offers partial relief from paying federal employment taxes provided an employer agrees to treat workers as employees. Applicants of the VCSP must fill form 8952.
Independent contractor rights
Independent contractors have several rights separating them from regular employees. The rights include:
- Right to control
- Right to work as you like
- Right to a contract
- Right to market services
- Right to work with other contractors
- Right to choose management style
a. Right to Control
As an independent contractor, your client can’t dictate how you should do your work or control how you work. They can’t dictate where, when, and how you do the job. The right to control is a fundamental aspect of independent contracting. If a client attempts to dictate how you work, they risk turning your relationship into an employer-employee relationship. Independent contractors are experts in their field. As a result, clients should leave independent contractors to do work as they see fit without asserting any degree of control.
b. Right to work as you like
Independent contractors can work when they like and from wherever they like. There is an exception to projects requiring a contractor to be onsite. This right to work from where you like/as you like, makes contractors responsible for providing tools and equipment for the job. This applies because the services offered by independent contractors are usually outside the scope of their client’s work (normal business activities). If you have been classified as an independent contractor but you are expected to work with an internal team, chances are you have been misclassified.
c. Right to a contract
Independent contractors must receive a contract that establishes the relationship between the contractor and the client. Before you start working, you and your client should sign the contract. The contract should describe the job, the period for completion, billing, payment terms, and termination terms at a minimum. Here’s a sample independent contractor agreement/template.
d. Right to market services
Independent contractors can market their services and work with multiple clients at once. You can work on many other projects, even if you have signed a long-term contract with another client.
e. Right to work with other contractors
Independent contractors can work with other contractors (sub-contractors or other independent contractors) to complete projects. However, it is best practice to let your client aware of the fact that you plan on using additional resources to do the job. Such information should also be included in the contract.
f. Right to choose management style
Independent contractors have the right to manage their business or work as they like. However, contractors must be aware of their tax responsibilities to be able to run their business as they see fit. Independent contractors receive pay before tax is deducted. The IRS has an independent contractor tax resource that lets contractors know how to pay as well as file returns.
How to become an independent contractor
There are many examples of independent contractors. Whether you want to become an amazon independent contractor or an independent electrical contractor, there are minimum requirements you should meet. Most independent contractors start working and earning without deliberately planning for it. Within no time, side projects become a side business generating a substantial amount of money. If you are paid after providing a service, you must comply with the law even if you work a few hours monthly.
There are 3 simple steps to becoming an independent contractor. They include:
- Registering a business name
- Get a business license
- Paying applicable taxes
1. Registering a business name
You can use your name as your business name. However, it’s advisable to choose a business name you can use to make your invoices, business card, among other business documents, more professional. After choosing a suitable business name, you need to register it. Besides professionalism, a business name also enables you to enforce signed contracts. Any contract you get into using an unregistered business name can’t be enforced. What’s more, financial institutions like banks can’t open accounts if you haven’t registered your business name.
In California, you can register a business name with a county clerk at the county level.
2. Get a business license
You need to get a tax registration certificate or business license. If you plan on working from home, you can get a certificate in your home city even if your clients come from elsewhere. Your city clerk can help you with the application process. Some independent contractors choose to operate without registering; however, this requirement is inexpensive. Furthermore, the penalties for running a business without a license outweigh the perceived registration challenges.
You may also need a vocational license to start operating as an independent contractor. You can visit your state government site to check if you are required to have a specific license or permit.
Important: Registering a business ensures you separate yourself from the business giving you some much needed legal protection in case the business fails and is unable to meet its repayment obligations. Under such circumstances, your personal finances/property will be safe.
3. Pay applicable taxes
Unlike employees who have taxes deducted from their pay by their employers, independent contractors must handle their own taxes. You must put $aside enough money to offset your tax bill every year. If you earn over $400 every year, you must report such income to the IRS. Profitable businesses must pay estimated taxes in 4 installments during the year. You can use the IRS’s resource for estimating tax paid by independent contractors.
If you are a small-time independent contractor, taxes on consulting or freelancing income may not be subject to tax. However, you should consider the IRS penalties associated with underreporting income. Furthermore, there are many deductibles you can take advantage of to reduce your tax burden as an independent contractor.
FAQS about independent contractors in California and misclassification
Which agencies determine if you are an employee or independent contractor in California?
The EDD is among the top state agencies concerned with determining the independent contractor status of workers. The state agency is mostly concerned with employment-related taxes. The DLSE also has the mandate of determining the status of employees in California, especially on matters regarding wage, hour as well as worker’s compensation insurance. Other agencies with a similar mandate include the FTB or Franchise Tax Board and CSLB or Contractors State Licensing Board.
Can I be regarded as an independent contractor under one law and an employee under another law?
Since there are different laws involved in different situations i.e., for termination vs. hourly compensation, it is possible for a person to be regarded as both an employee and an independent contractor. The importance of conducting thorough research and analysis of different working relationships can’t, therefore, be overlooked.
Why is it important to be designated correctly as an employee or independent contractor?
Designation is important since it determines a worker’s compensation benefits. Depending on your State, the ABC test can also apply to wage and work hour laws. The test can also determine a worker’s access to unemployment insurance in some States. Other states use the ABC test on specific industries.
Which States in the US use the ABC test?
Most States use the ABC test or a form of the test to categorize workers. The States that use the test include, but aren’t limited to, California, Hawaii, Alabama, Mississippi, New York, Connecticut, Colorado, Idaho, Vermont, Louisiana, and Illinois.
Is an independent contractor self-employed?
Yes. Independent contractors are treated as self-employed individuals for tax purposes.
How many hours can an independent contractor work?pp
Independent contractors are free to work as many or as little hours as they wish. As discussed above, independent contractors exercise complete control over how they work.
Can you tell an independent contractor when to work?
No. An independent contractor is supposed to work independently with full control of how and wheni they work. Employers who insist on dictating when independent contractors work risk misclassifying them.
Do independent contractors need a business license?
It depends on the nature of work. Although it is advisable to have a business license when rendering any service to other parties, some independent contractors don’t need a business license to operate legally.
Are real estate agents independent contractors?
Real estate agents are considered to be independent contractors. However, they may be supervised by a real estate broker. In every other aspect, real estate agents operate as independent contractors
Do independent contractors get overtime?
No. They aren’t supposed to receive overtime, among other wage and hour benefits received by employees.
Is there a precise way to determine if I am an independent contractor or employee?
No. There’s no clear definition of independent contractors. Determining an employee’s status is highly dependent on court interpretations as well as enforcement agencies in regard to a specific case or situation. When resolving employment status issues, agencies like the DLSE presume every worker is an employee initially as per Labor Code 3357. However, an actual determination must be done by considering several factors, none of which are controlling on their own.
Most employment status matters brought before the DLSE must be taken through a test with the most significant factor being determining if the person rendering services has complete control over their work. How work is done, and the means of doing the work is also considered, among other additional factors.
Am I an independent contractor because I have signed a contract that says so?
No! Even if you have been made to sign a contract that says you are an independent contractor or you are paid in a manner that suggests you are an independent contractor, you are an employee if you don’t pass the ABC test for independent contractors. How you are paid or the contract you sign is of no importance in determining your employment status. Employers can’t change a worker’s employment status by illegally assigning you tax burdens that the labor law gives employers or any other actions that put you at a disadvantage.
The existence of written agreements purporting an independent contractor relationship doesn’t matter. California courts and the Labor Commissioner look “behind” such agreements to determine if they portray an actual relationship and determine cases based on concrete facts.
Why should I care if I am misclassified as an independent contractor instead of an employee?
There is a big difference between independent contractors and employees as per California labor law. For instance, workers who are considered employees are entitled to overtime, minimum wage, rest breaks, and meal breaks. They are also protected by workplace discrimination laws. Independent contractors don’t enjoy such benefits and protections. Furthermore, employees can go to state agencies like the DLSE to claim and enforce the law on vast workplace/employment-related issues. Independent contractors can’t go to such agencies. Instead, they can only turn to the courts to settle disputes and enforce rights stipulated in their contracts.
I have been found to be an employee as well as an independent contractor by two different entities with a legal mandate to determine employment status. How can that be?
The labor commissioner can determine you to be an employee if you file a wage claim. On the other hand, the EDD can determine that you are an independent contractor and turn down your unemployment insurance benefit claim. This is possible since there is no clear definition of independent contractors. As discussed above, your employment status is dependent on the specific area of the law being applied.
When the DLSE is investigating a wage claim based on employment status, the agency usually uses an economic realities test. However, a separate issue with the same facts and parties may require a different test to be used, resulting in a completely different determination. It’s, therefore, possible for you to be considered an employee by one law and an independent contractor under another law.
There is some confusion, especially in relation to court cases in the past. For instance, companies like Uber have been subject to confusing judgments. Courts have taken contrasting stances when determining the employment status of Uber drivers. In the past, one court has ruled that Uber drivers (limousine drivers) are independent contractors while other courts have ruled Uber drivers as employees. These are classic cases of control and direction.
What’s more: The IRS doesn’t use the ABC test explicitly yet. However, the agency notes the provision of evidence of control and independence (behavioral, financial, and relational) as common law factors. The importance of looking at the entire worker-payer relationship and applicable documents can’t be overlooked according to the IRS.
Are Uber driver’s independent contractors?
It depends. As discussed above, the definition of independent contractors is subject to specific laws being applied.
I have been classified as an independent contractor and denied overtime. What should I do?
You can deal with misclassification in two main ways. One, you can file a wage claim. You can also file a lawsuit. The DLSE can determine wage-related misclassification claims. The court can also compel your employer to pay you lost overtime as a result of misclassification. For both situations, your employment status must be determined before you get your overtime.
If you are classified as an employee after the above processes and you don’t work for the employer in question anymore, you can file a claim (waiting time penalty) as per Labor Code 203. Eligibility to receive this penalty depends on employment status. Independent contractors don’t qualify to receive the waiting time penalty.
After filing with the DLSE, the claim is assigned to the deputy labor commissioner to establish the best way of proceeding based on the circumstances and information in the claim. The claim can be dismissed or referred to a conference or hearing.
If the deputy labor commissioner decides on a conference, parties are notified of the date, venue, and time of the conference by mail. Conferences are meant to assess if claims are valid. They also determine the need for a resolution without a hearing. If both parties can’t agree at the conference, a hearing is scheduled. The claim can also be dismissed for reasons such as lacking evidence.
If a hearing is held, you and witnesses (if present) must testify under oath. Proceedings are also recorded. Hearings end with an ODA (Order, Decision, or Award) served to all parties. You are free to appeal an ODA in a civil court where the matter will proceed to trial with each party presenting evidence and witnesses afresh.
My employer has refused to obey the ODA. What can I do?
If a judgment is given against your employer and they don’t appeal, they are obligated to act according to the ODA. The DLSE can compel the court to enter the judgment against the employer. Such a judgment is enforceable like any other money judgment entered by a court. If you are having trouble collecting an award, you can assign the DLSE to collect it on your behalf.
I have been fired because of pointing out misclassification and demanding my right to overtime, meal breaks, and rest breaks. What can I do?
California labor laws protect employees against workplace discrimination instances such as retaliation against an employee who fights for their rights. If your employer dismisses you, reassigns you, demotes you, or retaliates in any other manner because you have questioned your employment status or demanded your right to overtime, meal breaks, rest breaks, or minimum wage, you can file a workplace retaliation complaint.
You can also hire a workplace discrimination attorney or labor attorney and sue your employer. If you are found to be an independent contractor, the DLSE can’t assist you. The agency lacks jurisdiction over claims involving independent contractors. In such an instance, you should seek justice in court.
What should employers do about misclassification?
California employers should take a step back and examine their relationships with employees in contracts using the AB 5 framework. Since all companies are subject to this law in regards to misclassification, being familiar with the ABC test is important for reducing risks associated with misclassification claims by workers, class action attorneys, and state authorities.
Most importantly, companies should monitor California courts constantly and their interpretation of the AB 5 to avoid legal risk when hiring. Employers should also take a proactive approach and transition independent contractors back to employee status, where a clear distinction is nonexistent.
If reclassification isn’t an option, a company’s existing policies and contracts can be revised to satisfy AB 5. Using labor contractors or third-party staffing agencies requires careful selection of compliant contractors or agencies. Employers must also uphold obligations in agreements as well as indemnify clients for violations since employers are usually found to be jointly liable for wage and hour violations made by third-party staffing agencies and labor contractors when providing workers.
Employers who need to re-examine employee status should do so immediately (before 2020). It’s advisable for employers to seek the advice of an employment law attorney. Misclassification is a costly problem that leads to hefty fines, penalties, and settlement offers.
I was classified as an independent contractor, but I qualify as an employee. What should I do?
Independent contractors who qualify as employees should complete the relevant W4 with their new employee status. You can claim unemployment benefits and worker’s compensation. You will also be eligible for wage and hour benefits like overtime and rest/meal breaks as well as compensation that is in line with California’s minimum wage law. Employers should withhold taxes as well as contribute payroll tax.
State laws can conflict federal laws leaving employers confused about the laws they should follow. Generally, employers are expected to follow the rules which are more generous to workers. This explains why the default status of workers is assumed to be that of employees initially. It’s up to employers to prove otherwise to justify independent contractor status.