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Employees vs. Independent Contractors in California

The Guha Law Firm Feb. 20, 2024

The distinction between an employee and an independent contractor can be a gray area for many in California. Simply put, an employee works under the direct control of an employer, while an independent contractor operates under their own authority, carrying out tasks as they see fit. This difference in control over work is a key factor in determining one's status. 

However, it's not just about control. The financial relationship between the worker and the employer also comes into play. For instance, employees typically receive a steady wage or salary, while independent contractors are paid per project or task. We understand that these distinctions can have significant implications for both workers and employers in terms of taxes, benefits, and legal protections. 

The ABC Test

In California, we use the "ABC Test" to determine whether a worker is an employee or an independent contractor. This test consists of three parts:  

(A) The worker is free from control and direction in performing the work. 

(B) The work performed is outside the usual course of the business. 

(C) The worker is customarily engaged in an independently established trade, occupation, or business.  

All three conditions must be met for a worker to be considered an independent contractor. If even one condition is not met, the worker will likely be classified as an employee. The ABC Test has significant implications for both workers and employers.  

Rights of Employees vs. Independent Contractors  

The classification of a worker in California also affects the rights and protections they're entitled to. As employees, workers are protected by a range of state and federal laws, including minimum wage and overtime pay, meal and rest breaks, and protection against discrimination and harassment.  

On the other hand, independent contractors don't have the same protections. They negotiate their own pay rates and aren’t eligible for overtime or breaks. However, they do have more control over their work and can negotiate terms that employees cannot, such as setting their own schedule and choosing their clients.  

Can someone be both an employee and an independent contractor?

Yes, it's possible for a person to be both an employee and an independent contractor, but this would be in different roles or for different companies. For example, an individual could have a part-time employment position with one company and do freelance work for another business. 

How does workers' compensation apply to employees and independent contractors?

In California, employers are required to provide workers' compensation insurance for employees. Independent contractors, however, are typically responsible for their own insurance. If a worker is incorrectly classified as an independent contractor, they may be unjustly denied workers' compensation coverage. 

Do independent contractors have to pay for their own tools and equipment?

Generally, independent contractors must provide the tools, equipment, and materials required to complete their work. Conversely, employers typically furnish the necessary equipment for employees to perform their duties. 

Is there a difference in tax filing for employees and independent contractors?

Yes, there is a significant difference in tax responsibilities. Employees have taxes withheld from their paychecks, while independent contractors are responsible for paying their own federal, state, and self-employment taxes directly. 

Misclassification and Its Consequences

Misclassification of workers as independent contractors when they should be employees is a serious issue in California. It may result in employers avoiding certain obligations such as paying payroll taxes, providing benefits, and adhering to labor law requirements. 

The consequences of misclassification can be severe for both workers and employers. Workers may miss out on important benefits and protections, while employers may face hefty fines and penalties.  

What to Do If You're Misclassified

If you believe you've been misclassified as an independent contractor when you should be an employee, take action. This includes: 

  • Consult with a legal expert to discuss the specifics of your work situation. 

  • Gather documentation that supports your case, such as contracts, pay stubs, communication with the employer, and a description of your work duties. 

  • File a complaint with the California Labor Commissioner's Office, which can investigate and resolve classification disputes. 

  • Reach out to the Internal Revenue Service (IRS) through Form SS-8 if there is a federal tax concern related to your misclassification. 

  • Understand your rights by reviewing resources provided by the California Department of Industrial Relations and federal agencies. 

  • Consider options for recovering lost wages and benefits, which may include filing a lawsuit against the employer for misclassification. 

At The Guha Law Firm, we're dedicated to providing you with the legal support you need to ensure your employment status is correctly classified and your rights are protected. 

Understand Your Workers' Rights

At The Guha Law Firm, we're prepared to help you understand your legal rights. Based in Orange, California, we extend our services throughout San Bernardino, Los Angeles, and Riverside counties. Whether you're an employee or an independent contractor, we'll stand by your side, offering knowledgeable advice and guidance every step of the way. Reach out to our firm today for support.