With the recent passage of California Senate Bill 459, it is more important than ever that employers closely analyze any independent contractors with whom they work to verify that they do indeed meet the state and federal guidelines for that classifications. As discussed in the following article, the penalties for misclassification are now substantial.
The general rule is that an individual is an independent contractor if the employer has the right to control or direct only the result of the work and not the means and methods of accomplishing the result.
Facts that provide evidence of the degree of control and independence fall into three categories:
Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
Type of relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
In addition, the courts have created a five-factor test for determining independent contractor status. The factors are:the degree of control exerted over the worker;the worker’s opportunity for profit or loss;the worker’s investment in his/her business;the permanence of the working relationship; andthe degree of skill required to perform the work.
As an aid to determining whether an individual is an employee under the common law rules, 20 factors or elements have been identified as indicating whether sufficient control is present to establish an employer-employee relationship.
1. Instructions. A worker who is required to comply with other persons' instructions about when, where, and how he or she is to work is ordinarily an employee.
2. Training. Training a worker by requiring an experienced employee to work with the worker, by corresponding with the worker, by requiring the worker to attend meetings, or by using other methods, indicates that the person or persons for whom the services are performed want the services performed in a particular method or manner.
3. Integration. Integration of the worker's services into the business operation generally shows that the worker is subject to direction and control.
4. Services rendered personally. If the services must be rendered personally presumably the person or persons for whom the services are performed are interested in the methods used to accomplish the work as well as in the result.
5. Hiring, supervising, and paying assistants. If the person or persons for whom the services are performed hire, supervise, and pay assistants, that factor generally shows control over the workers on the job. However, if one worker hired supervises, and pays the other assistant pursuant to a contract under which the worker agrees to provide materials and labor and under which the worker is responsible only for the attainment of a result, this factor indicates an independent contractor status.
6. Continuing relationship. A continuing relationship between the worker and the person or persons for whom the services are performed indicates that an employer-employee relationship exists.
7. Set hours of work. The establishment of set hours of work by the person or persons for whom the services are performed is a factor indicating control.