What exactly is the difference between an Employee and an Independent Contractor?
In the current “gig” economy, many wonder if they have been misclassified. In order to fully understand the practice of misclassification, one must first have an understanding of what it means, from a legal standpoint, to be considered an “independent contractor.”
According to the Department of Labor, the distinction between an employee and an independent contractor depends on the following factors:
- The extent to which the services rendered are an integral part of the employer’s business;
- The permanency of the relationship;
- The amount of the worker’s investment in facilities and equipment;
- The nature and degree of control by the employer;
- The worker’s opportunities for profit and loss;
- The amount of initiative, judgment, or foresight in open market competition with others required for the worker’s success;
- The degree of the worker’s independent business organization and operation.
What Does That Mean?
Let’s simplify. In its purest form, an independent contractor is someone you hire to come in and independently do a job for you. Ordinarily, it would be someone with experience, skills and tools you don’t possess yourself. A good example would be a plumber. You don’t tell your plumber what hours to work on your toilet, other than the hysterical phone call you place to his service, only to be told he’s “backed up” and will get there when he can, despite the fact that your second floor is flooding. He comes when he wants, does the job the way he sees fit, hopefully after providing that estimate you’re dreading, and getting your approval. You give him (or her, let’s be fair) little if any supervision and your input consists of selecting between copper or lead replacement piping. You don’t tell him when he can take a break or how he should be dressed.
When hiring as a homeowner, it’s pretty easy to make the distinction. In fact, just drop the term “independent” and you’ve got a fairly clear list of folks who qualify, i.e., just about any skilled contractor you might hire to do routine home repair, would fit precisely the intended legal definition of an “independent contractor.” A true independent contractor owns their own tools, sets their own schedules, works independently, and possesses a set of skills you find yourself lacking, which is why you hired him in the first place to do work you couldn’t perform yourself.
In an office setting, the same rules apply. In the context of the legal profession, the need for a court reporter or outside I.T. professional are both valid examples of sourcing independent contractors. A Court Reporter has a specialized skill, brings his or her own equipment in the execution of this skill, and works independently.
So how is it that business owners often call office workers “independent contractors” when, although the workers may be highly-skilled, the employer controls all details of a worker’s performance, and provides the office and equipment? Many of these so-called “independent contractors” work a 9-5 job, laboring in fairly standard office positions, with little or no discretion to determine anything about the way they generate the work product . The simple answer is that these businesses are violating the law. It’s a cost-cutting measure utilized by many businesses, and it is unlawful.
The good news?
California has recently passed SB 459 to increase the stakes for employers seeking to save a quick buck by denying their workers a fair wage:
California’s Labor & Workforce Development Agency now has the power to fine such rule-breakers for “willfully misclassifying” their employees, in amounts ranging from $5,000 to $15,000 per violation. The penalty goes up to $25,000 per violation if the employer is shown to have committed a “pattern and practice” of “willfully misclassifying” its workers.
These new penalties are imposed on top of the already existing penalties, interest and taxes for misclassification of contractors. Further, if a business is found to have willfully misclassified an employee as an independent contractor, a prominent public notice must be posted for one year on a website or work-site reciting the misclassification. (They have to post it on a wall of shame. Nice.)
If you believe you have been victim of misclassification by your employer, contact an experienced labor lawyer to find out if you have a claim.
Answers to many FAQ can be found at the Department of Industrial Relations
Lazear Mack, LLP
Employment Law Attorneys
436 14th Street, Suite 1117