EMPLOYEE OR INDEPENDENT CONTRACTOR?

Do Not just take a stab in the dark as to whether a worker is an employee or an independent contractor – it could be the most expensive guess you ever make!

According to the California Employer Daily Newsletter, “to employ” means to “engage, suffer or permit” someone to work for you.  Sound confusing? It certainly can be.  Wage and Hour laws can be complicated – particularly in California.

Erring on the side of treating workers as employees is a good way to guard against costly lawsuits.  Keep in mind that simply labeling someone an Independent Contractor will not help you nor will having workers sign documents agreeing to be treated as independent contractors.  Also, if you feel that just paying someone on the IRS form 1099 will determine if that person is an employee or not will also not help you.

The IRS and the California Franchise Tax Board have their own tests for determining who is an employee for purposes of payroll taxes.  With respect to wage and hour requirements, California uses the “Borello Test” – which strongly favors a conclusion that workers are employees.

The Borello Test examines the total circumstances of the relationship between the business and the person performing the work in light of 11 factors:

1. Is the work the person is performing for your company in an occupation or business that is distinct from that of the company?

2. Is the work part of the company’s regular business?

3. Does the company supply the equipment, tools, and a place for the person doing the work?

4. Does the worker have a financial investment in the equipment or materials required to perform the work?

5. Does the worker have the skills required in the particular occupation?

6. Is the type of occupation work that is usually done under the company’s direction or by a specialist without supervision?

7. Does the worker’s opportunity for profit or loss depend on his or her own managerial skill?

8. How long will the services be performed?

9. What is the degree of permanence of the working relationship?

10. Is the payment method by time or by the job?

11. Do the parties believe they are creating an employer-employee relationship?

Although no single factor in the Borello test is determinative, the first one – whether the individual’s work is the service or product that is the company’s primary business – is given the most weight.