The misclassification of employees as independent contractors is a common error made by employers. Although some employers inadvertently misclassify employees as contract workers due to a lack of understanding of the law, others do so on purpose in order to avoid legal obligations owed to employees. This is because employees have specific rights under California law that are not afforded to independent contractors. Below is some basic information regarding the difference between employees and independent contractors.

Employees versus Independent Contractors

An employee is someone who a California business has hired and has substantial control over how and when work is performed. Generally, the employee performs work for the company that is regularly part of the company’s business. An employee will work at the company’s place of business, have regularly scheduled hours, receive an hourly wage or annual salary, receive direction and training from the company, and is subject to discipline. Often times the California employer provides training, guidelines and other supervision over the work performed by the employer.

On the other hand, independent contractors typically provide specialized work that isn’t related to a company’s regular business and often provide services for multiple clients. Independent contractors often establish their own pay, provide their own equipment, work from their own office or home, and decide when and how the work will be performed. While a client may provide deadlines or specifications for the work needed, the independent contractor determines how best to complete the work and how much time will be spent.

Employee Rights in California

There are several protections afforded to employees under both federal and California laws. Some of the rules that apply to employees but not independent contractors in California include that employees:

• Must have their state and federal payroll taxes withheld by the employer;
• Are eligible for unemployment benefits from the state of California;
• Are entitled to wage and hour protections, such as minimum wages and overtime pay; and
• Are protected from discrimination under state and federal anti-discrimination laws.

Proper Classification of California Workers

In the state of California, numerous state agencies have specific tests to determine whether a worker is an independent contractor. The Employment Development Department (EDD) uses one test if it suspects a California employer was supposed to withhold payroll taxes from the worker’s wages or if a worker is seeking unemployment benefits. The California Division of Workers’ Compensation, on the other hand, uses a different test when analyzing whether or not someone is entitled to workers’ compensation benefits.

The California Supreme Court established a test that employers must meet for employees to be named independent contractors. Companies must show that all of the following are true:

• The worker is free from control and direction, in the contract terms and in actuality, from the company in performing the work;
• The work performed is one that is outside of the company’s regular business; and
• The worker is typically engaged in a trade, occupation, or business - independently - that is the same work as what is performed for the company.