Employee vs. Independent Contractor vs. Contractor in California
The internet is flooded with misinformation and scams. The white noise can be overwhelming. The line between being an independent contractor and an employee has become blurred as the number of “gig economy” jobs rise in popularity. In this article, we will explain the significant differences between contractors, independent contractors, and employees.
Contractors
Contracting provides companies and individuals an alternative to permanent employment. Contractors are professionals who offer skills or services to companies for a fixed period, often completing a single project.
Contractors are responsible for their own equipment, tools, and other supplies. They negotiate their own hours and are self-directed in completing their own work. Contractors are not entitled to certain benefits like workers' compensation insurance, workers’ comp, health insurance, and FMLA leave, which are usually provided to full-time employees.
Independent Contractors
Independent contractors are self-employed professionals who provide a service of some sort to companies but are not employees. If the independent contractor provides services within the company, they are usually compensated by a predetermined cost per hour, a lump sum amount, or other ways.
Companies that work with independent contractors are not required to provide them with benefits like health insurance or retirement accounts.
Employees
Employees are people who provide services of some sort within the company. They usually get paid a fixed wage or salary and receive benefits and protection under federal, state, and local labor laws. Employees are usually hired to work full-time and are required to work in a specific workplace. However, some companies also may hire employees who work remotely.
Independent Contractors vs. Employees
An independent contractor may be a sole proprietor or have an incorporated business. Their businesses provide specialized services. They also typically bring specialized expertise to a project, while employees receive training when it comes to their job duties.
It’s also important to note that independent contractors may take on additional work for other clients even if they have a long-term contract with one company. Depending on their contracts, employees may not be able to do so.
When it comes to task completion, employees handle a wide variety of duties and tasks, while independent contractors will only need to carry out the services in the Scope of Work (SOW).
Scope of Work: Why is It Important?
If a contractor doesn’t have an SOW, they’re more likely to work on a whole spectrum of what you have in mind, rather than completing a specific task. The contractor may take on more projects than they can handle, which can lead to low-quality work and a waste of time.
The SOW is detailed and outlines the tasks, responsibilities, deliverables, and other critical components you want completed. The SOW is key in defining the work you want to be done, how the work will be done, and how the work will be evaluated.
California Supreme Court's Definition of Employee v. Independent Contractor
In California Workers' Compensation, the question of whether someone is an independent contractor or an employee is important. An Independent Contractor is not entitled to Workers' Compensation protections, while an employee is. However, just because you filled out a 1099 form doesn’t mean that you are an independent contractor. Companies often classify someone as an independent contractor when in fact they are an employee. They do this for several reasons: avoiding workers' compensation premiums, employment taxes, and social security payments. This is a dangerous risk, not only for the potential penalties to the employers but for the health of the employees. A misclassified employee doesn't have access to medical care in the event of an injury.
This practice is often done under the ruse that the statutes and case law are confusing. However, on April 30, 2018, the California Supreme Court delivered a benchmark for determining whether someone is an independent contractor or an employee. The standard, a three-part test, is much more restrictive than previously. The three-part test the court created in Dynamex Operations West Inc. v. Superior Court of Los Angeles County (Lee) asks whether a worker meets any of the following criteria:
1. Is the person free from control and direction in the performance of their work?
2. Is the person performing work outside the scope of the hiring entity’s business?
3. Is the person customarily engaged in an independently established trade?
If the answer to any of the three questions is “no,” the person is an employee, subject to various labor law protections - including minimum wages, and meal and rest periods. This would also mean these standards apply to Workers' Compensation laws.
In this gig economy, the question of whether someone who is classified as an independent contractor is really an employee comes up constantly, especially in the world of California Workers' Compensation injuries. Under this standard, it would be hard to meet the independent contractor standard for most, other than completely independent tradespeople.
The Bottom Line
As the workforce becomes more flexible and independent, it’s important to stay ahead of the game and understand the difference between a contractor, an independent contractor, and an employee. Being able to clearly understand the differences in your relationship with a contractor, independent contractor or employee is necessary for your protection and the protection of your business.
If you are classified as an independent contractor and were injured on the job, there is a good chance you have been misclassified and are entitled to California Workers' Compensation benefits.
If you’re looking for workers’ comp attorneys in Northern CA, we have you covered. Pacific Workers’, The Lawyers for Injured Workers is one of the best workers’ compensation teams in the Bay Area. Let us help you today. Contact us at 800-606-6999 for a case evaluation.