Independent Contractor v. Employee?

Has your business had a recent visit from the labor commissioner reviewing whether you have properly classified your workers as employees as opposed to independent contractors? Has one of your independent contractors been injured and then claimed to be an employee?

Before you make a decision to retain workers and classify them as independent contractors, please remember there are other possible penalties. An employer engaging in “willful misclassification” of an individual as an independent contractor is subject to civil penalties of up to $25,000. “Willful misclassification” is defined as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.”

If you are found to have willfully misclassified an individual as an independent contractor, you will also be required to post prominently on your website that you have “committed a serious violation of the law by engaging the willful misclassification of employees.” If you are a contractor, you may be subject to disciplinary action by the contractors’ state license board.

Before you retain a worker and classify them as an independent contractor, you also should consider some of the following matters in making that determination:

  •  Do guidelines exist for your business determining whether a worker is an independent contractor?
  •  Which test will be applied to determine the legal classification of your worker?
  • Some of the possible advantages in using independent contractors include: a) not having to pay employer contributions, b) cost savings from not having to pay for medical insurance, vacation, sick time and retirement plans, c) the availability of highly specialized personnel on a contract basis, and d) administrative savings from not having to set up a payroll system.
  • In addition to the penalties in misclassifying a worker as an independent contractor, disadvantages of using independent contractors include: a) a loss of control and b) the inability to terminate the independent contractor without cause without risking the liability for breach of contract.

If you have a question concerning the classification of your workers as employees or independent contractors and your business is in Northern California, Humboldt County, Del Norte County, Trinity County or Mendocino County, please contact us.