Employee or Independent Contractor?
Do you have Independent Contractors providing services to your business? If you do, be aware that California has strict standards to determine who is truly an Independent Contractor, versus who is actually an employee being intentionally misclassified as an independent contractor.
The Courts, the Labor Commissioner and government agencies are applying strict scrutiny to this question. They are not convinced that someone is an Independent Contractor just because the employer took prophylactic measures like signing an Independent Contractor agreement and providing a worker with a 1099 form instead of a W-2. According to the California Department of Industrial Relations (DIR.ca.gov) website:
“The fact that a person who provides services is paid as an independent contractor, that is, without payroll deductions and with income reported by an IRS form 1099 rather than a W-2, is of no significance whatsoever in determining employment status.”
The website also states:
“The existence of a written agreement purporting to establish an independent contractor relationship is not determinative. The Labor Commissioner and courts will look behind any such agreement in order to examine the facts that characterize the parties’ actual relationship and make their determination as to employment status based upon their analysis of such facts and application of the appropriate law.”
In other words, if a State agency believes that an employer may have misclassified a worker as an Independent Contractor, it will conduct a deep and fact-intensive analysis to determine the true nature of the work relationship.
Some employers intentionally misclassify employees in order to avoid paying payroll taxes, workers’ compensation insurance, and other state-mandated employer payments. However, an employer who has misclassified an employee is subject to hefty penalties under the Labor Code and other laws, and choosing to do so is a very risky course of action.
Please contact the Law Office of Karen J. Sloat at 760-779-1313 to find out more.