In the Spring of 2018, the California Supreme Court handed down a major change regarding how employers classify a California independent contractor.
This new ruling has left many California business owners wondering, “What do we do now?” This sentiment will likely echo for several years to come since the April 30th decision.
If you are struggling to address your company’s own compliance issues, then this article is for you. We will address the following areas according to the new rule:
- The differences between an employee and a contractor
- Why the law changed in favor of contractors
- Strategic ways to realign your business
Plus, we will address the key players that can help you make the most informed decisions possible.
What is the difference between an employee and a contractor?
The main difference between classifications lies in how the employee is treated, the type of work, how they are paid, and a few other significant factors. In order to determine if someone is an employee or a contractor, the conditions to be met are listed below.
Employees are required to…
- Have payroll taxes taken from their paychecks;
- Be provided with Workers’ Compensation Insurance;
- Be eligible for Unemployment Insurance;
- Receive a minimum wage and hourly protections; and
- Be protected under federal/state discrimination laws
A California Independent Contractor must meet 3 conditions…
- They are free from control and direction in how they meet objectives;
- Work is performed outside of the usual scope of business; and
- The contractor is its own separate business entity.
In the next section, we are going to look at why these distinctions matter and how they shaped the law.
Why did employment law shift in favor of contractors?
Among the most typical mistakes made by employers is misclassifying employees as independent contractors. While some companies misclassify workers because they do not understand the law, other employers deliberately do so to stop short and refuse legal obligations to staff members.
The landscape of the employment world has changed tremendously over the last 20 years; California saw a need to change with it.
For example:
Let’s take a look at hiring web designers. Hiring an outside web designer works like any buyer-customer transaction, especially when you do not need to hire a full-time person in-house.
However, let’s say a company decides they need a full-time web designer, but they don’t want to pay for benefits or taxes but yet they want to tell the contractor how he or she should do the work. Is that fair?
In the eyes of the law, the answer is a hard NO.
As an employer, you have to play by the rules. Your intent should match that of your actions. Anything less may look like a thinly veiled attempt at skirting the law.
A Sensible Approach to Maintaining Compliance
As you can probably tell from reading this article, there are many moving parts to California’s new, three-prong test that determines whether you should classify as worker as an employee or an independent contractor.
If you have questions or concerns regarding your unique situation, it is usually a great topic to discuss with your attorney. At Semanchik Law Group, we can work with you to find a solution that will be tailored to your business’ needs.
Contact us about employment law issues anytime by clicking here.
