Let’s say an employer hires you and suggests that you accept independent contractor status rather than being labeled as a regular company employee. To sell the idea, the simple tax form and reduced monthly deductions you would be required to pay are put on the table. What should you do?

Who Determines Independent Contractor Status?

To be clear, employers are not allowed to make this determination willy-nilly, even though there are noteworthy benefits to employers who engage independent contractors. Hiring an individual as an employee has significantly different requirements for employers than hiring that same individual as an independent contractor. The benefits are so tempting, in fact, that employers could face significant penalties when they erroneously classify an employee as an independent contractor. Several government agencies oversee classification controversies, including the Division of Labor Standards Enforcement (DLSE), and the Employment Development Department (EDD).

Employer Benefits of Hiring Independent Contractors

Tax forms and withholding amounts differ, as well as employer tax burdens. Sometimes employers might prefer to have independent contractors in order to avoid payroll taxes, overtime and minimum wage requirements, rest and meal breaks, worker’s compensations insurance, social security, disability insurance, and reimbursements for business expenses.

Are You an Employee or an Independent Contractor?

Because the law does not specifically call out a definition of an independent contractor, court interpretations and agency precedents must be relied upon to make individual determinations.  The Division of Labor Standards Enforcement (DLSE) starts with the presumption that an individual is an employee, and then applies several tests to determine whether or not independent contractor status is appropriate.

The primary consideration is whether or not the employer has the right to control how tasks are accomplished. For instance, an employee performing janitorial tasks may be required to use particular cleaning products, whereas an independent contractor who performs those same janitorial services is simply held to completing the task by whatever means he or she feels appropriate.

Several other factors are considered, including:

• Whether or not the individual performing the services does so separate from the employer;
• Whether or not the individual supplies the space, tools, and materials required for the job;
• Whether or not specialized skills are required for the task;
• Whether payment is dependent on time or job completion.

Three factors that indicate an employer/employee relationship, regardless of other factors, include:

• The primary control of the operation lies squarely with the employer;
• The duties of the worker are key to the success of the business;
• Detailed supervision of the work is inessential due to the nature of the work.

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