Independent contractors agree with a business or firm through a written contract that details the duties, pay, responsibilities, etc. of each. This independent contractor agreement is then executed independently of the business or organization by the independent contractor. In this way, independent contractors differ from employees because they are not entitled to typical employee benefits such as health insurance, retirement benefits, social security, etc. They work at their own pace and on their terms as long as they fulfill the conditions of the contract.

Who are IC’s?

An IC can be any individual or any business that performs services for another person or company under an agreement but is not subject to that person or business in the manner, means, or right to control their performance of those services. The company that hires an independent contractor is not themselves liable to others for any acts or omissions carried out by the independent contractor.

Your employment contracts may make provision for overtime to be worked by employees when the business requires it. Even so, some employees are quick to find excuses as to why they cannot do overtime just then. An independent contractor, on the other hand, sees any assignment as a business opportunity, regardless of whether it demands working over a weekend, public holiday or after regular business hours.

What is the Workload Like? 

Unfortunately for independent contractors, it is often either feast or famine, so if there’s work on offer they tend to grab it, regardless of whether they already have a heavy workload. The situation might then arise that they can’t meet your deadline, but you will quickly learn whom you can always rely on.

What if the IC Disappears?

If an employee were to abscond, you have to follow the proper statutory procedure e.g. wait the appropriate period to establish their non-return, send the required notices, hold a disciplinary hearing (even in absentia) and then dismiss. It takes time and costs the business money. With an IC, your agreement will stipulate “no work, no pay”; and you can employ a replacement immediately.

Independent contractors are appointed based on a portfolio of work, reputation or referral, which should be proven evidence of competence. If for whatever reason, you find yourself with someone who does not deliver, it is relatively easy to terminate the agreement. It is crucial to have a comprehensive agreement in place to establish their status, determine the payment schedule, confidentiality provisions and ownership of work.

There may be legal or practical reasons why a business cannot classify a significant portion of their employees as independent contractors. However, if contractors are used in conjunction with permanent staff, their work may challenge employees and motivate them to better performances.

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Are there some benefits of hiring an independent contractor?

Contractors are relatively cheaper than hiring permanent employees. Apart from paying salaries and other compensations, employers parts with other expenses such as payroll taxes, insurance premium among other benefits. When hiring ICs, you don’t need all these expenses. Hiring an independent contractor also minimizes exposure to a law suit.

What are some of the risk of hiring an independent contractor?

Although independent contractors offer a lot of benefits, misclassifying workers as ICs can be economically devastating. Businesses are expected to pay the IRS owed taxes with interest with a penalty of about 20%. States audit is more common, and most occur when workers classified as ICs apply for unemployment compensation after their services are terminated.

How can a business determine whether a worker is an employee or independent contractor?

There is no clear way of classifying independent contractors and the actual employees. Some of the legal test used by government employees includes the Internal Revenue Services, State Tax Departments, State Unemployment Compensation Insurance Agencies, State Worker’s Compensation Insurance Agencies, and National Labor Relation Board. Each of these institutions has different rules of classifying independent contractors and employees, and each of the agencies makes its own decision without considering what the other agencies have done.

Is it important to ask consultants and freelancers to sign written independent contractor agreements?

Yes, it is critical. Asking them to sign a written agreement helps avoid future disputes. The written agreement indicates the services that the IC is expected to perform, when he/she should perform and how much the IC should be paid. Written agreements also help to establish that a worker is an independent contractor.

Is there a specific procedure I should follow to ensure that the worker I employ is really an independent contractor?

The best way to ensure that the worker you are hiring is an independent contractor is to ask the contractor to fill out a questionnaire designed to elicit information that shows that the IC is actually running an independent business. It is also important to ask the independent contractor to provide you with documents that help to prove that the IC is actually self-employed.

Are there some specific steps I should take to avoid classification problems with government agencies? 

Yes. You should treat an IC like an independent business entity. For instance, you should not supervise, trained or want to require an independent contractor to attend specific hours or companies’ functions. If an independent contractor has completed a specific job, which he was hired for, avoid giving him another work before writing a new agreement. Also, don’t give IC other benefits or business cards.

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Worker misclassification is becoming a new hot button issue at both the state and national levels. It has been a long standing practice of employers to misclassify employees as independent contractors so as to avoid payment of taxes, unemployment benefits, workers compensation benefits, overtime, etc. This is a problem for California workers, because they are being denied compensation and benefits to which they are rightfully entitled. It is also a problem for the state of California, which continues to struggle with a huge budget deficit.

The test for determining whether an individual is an employee or an independent contractor depends on the state or federal law being applied. Under common law, an individual is considered an employee “if the person contracting for the services has a right to control and direct both the results of the services and the means by which those results are achieved.”  
At the federal level, the IRS and Social Security Administrationhave developed a 20-factor test for determining the level of control held by the person contracting for the services. The factors focus on three primary components:

• Behavior control – the right of the worker to control how a specific task is accomplished
• Financial control – the right of the worker to control the “business aspects” of accomplishing a specific task
• Relationship of the parties – how the parties perceive their relationship

At the state level, California has several different tests including those found in the California Labor Code and California Tax Code.  When enforcing wage and hour laws, the California Division of Labor Standards Enforcement (DLSE) uses the “economic realities” test,  which like federal law focuses on the degree of control held by the person performing the services. As Jonathan Siegel explains, there are many questions that can be asked, including whether the worker is performing specialized services and providing the required tools and equipment.
To ensure that workers are being properly classified, the IRS has developed a new audit program for employment taxes. Beginning in February 2010 and lasting through 2013, approximately 6,000 companies will be audited. In addition to resolving any worker misclassification issues, the IRS plans to collect data that will be used to improve future employment audits.

President Obama is also doing his part to crack down on worker misclassification. The proposed budget for the fiscal year of 2011 provides the Department of Labor with an additional $25 million to increase enforcement personnel and issue grants to bolster the states’ ability to address this problem.

If you believe your employer has wrongfully classified you as an independent contractor, contact a knowledgeable California labor law attorney. An attorney can explain your rights and may be able to collect many benefits to which you are entitled.

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The Four Most Common Mistakes Made By Employers According to the California Labor Laws

The California Labor Laws are constantly changing. It is common for employers in California to acknowledge myths as fact when it comes to their employees and the compensation.

Although most of the violations are found in small to medium sized companies who do not have a large human resources department or labor law attorneys, larger companies are just as guilty when it comes to some of the same violations. There has been an increasing number of California class action lawsuits that have been filed over the last 10 years, causing California to be where the most class action cases with a variety of protection available to any California employee.

There are four most common violations that employers make:

1.      Employers sometimes misclassify their employees as overtime exempt. This simply means that they pay their employee a regular salary and then have the employee work more than 8 hours a day or 40 hours a week without overtime pay. When it comes to this scenario, sometimes an employer will not give an employee an uninterrupted 30 minute lunch break. These are both examples that are considered a violation of the California Labor Laws and give the employee the option to file a wage claim.

2.      Another common violation is when an employer has their employees pay for all or just some of their expenses that are related to their work. It is very common for employees to use their own vehicle to run work errands. The truth is, that unless work related expenses are stated as part of employee compensation in a work contract, they must be paid back for what they spend. Another form of these violations is when an employer asks an employee to use their own home phone or cell phone to make phone calls outside of work hours; any charges that have been incurred should be paid back.

3.      An employer has a “Comp Time” policy. Comp time is when an employer has its employees stay late or come in early and not have to pay overtime. Instead, they allow the employee to leave early or come in late on another day.

4.       Another common issue is forfeiting vacation time. When an employee is terminated from their job, they must be paid for any vacation time that was earned, as well as their final wages. It is considered illegal under the California Labor Laws to have a “use it or lose it” policy.  The employer is allowed to pay for any unused vacation time, because vacation time cannot be taken away or expire once earned in California.

Our attorneys have prosecuted over 1500 class action proceedings as well as over 700 individual proceedings that are related to California employment.

If you believe that you have experienced any of the violations that are listed above, do not hesitate to speak to United Employees Law Group, as soon as possible.

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With the many labor laws in California that protect workers, it is said to be one of the MOST WORKER friendly states. There is a high priority placed on protecting employees from any wrongdoing or misdeed by a co-worker or superior. Even with these laws in place, many employees who scrape by from check to check, are forced to work in less than ideal environments and required to work overtime without compensation. Because these employees fear the loss of a job they are taken advantage of.

Thankfully in California the law goes beyond the protections found in the FLSA (Fair Labor Standards Act), adding our own additional protections to prevent such abuse as threats of reporting immigration status or retaliation against those who speak up against bad conditions.
In California, overtime pay must be paid to any non-exempt worker who is working over eight hours in a single shift, and 40 hours in a week. This definition goes beyond the Federal overtime laws which only require overtime pay once you reach 40 hours in a week.

The two worst offenses to this regulation that are common in California are, misclassifying an employee as being exempt and therefore refusing to pay them overtime, and demanding employees work OFF-THE-CLOCK to complete tasks without being paid. You can learn more about the specific reasons an employee can be considered exempt here.

The law in this area is pretty clear actually; in California you must be PAID for ALL time worked. This looks different all the time, but it may surprise you that one or more of these fit your situation:
-changing into and out of a uniform if required to do so at work
-clocking out before performing “closing duties”
-locking up and making bank deposits after work
-being coerced into clocking out before you are done, with the threat “if it takes you longer than someone else you’ll be replaced.”
These are all examples we have heard from employees who have been cheated out of overtime pay. In California we can go back a full four years to collect this kind of pack pay, and often with penalties and interest. These types of cases can add up quickly, as well as sometimes flagging an institution wide problem that can lead to a class action suit against the company.

Helping employees collect in situations like this is our specialty. We know the laws and can fight to get you the best compensation.
If any of this sounds familiar to you, we urge you to call United Employees Law Group TODAY. You will be given a free and completely confidential case review Let us see if we can help you too.

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The MOU or Memorandum of Understanding is a directive which has been included in the US Department of Labor’s (DOL) and the California’s Labor & Workforce Development Agency (LWDA) so that the employees are protected, and there is a new uniform system to regulate the classification of workers entitled to, and not entitled to, overtime pay in California.
Besides California, such agreements are done in many other states like Maryland, Montana, Massachusetts, Utah, Hawaii, Connecticut, Missouri, and Washington. The federal organizations and the state share the information so that they can help in gaining proper insights and assist in increasing the state as well as federal revenue by hiking the taxable income. In case an employee falls under the non-exempt category then they will be eligible for overtime payment which is taxable. Hence, the government too earns while you are doing overtime and getting paid for it.

This MOU came into existence after many cases where a company is located in one state but was working in another state. This was done so that the employer was saved from paying the employees the overtime rates which were mandatory in some states.
Often employers tried to skip paying overtime by labeling the employees as independent contractors. This has created issues in the economy of the nation. If an employee is classified as an independent contractor, the company is not liable to pay the employee overtime charges, medical benefits etc.

You need to bear a few things in mind. The first one is that in the state of California it is the employer’s responsibility to prove that you are not entitled to overtime pay. The next thing to remember is that the actual work profile needs to be considered to find out whether you are entitled to exemption or not. The employer has no say in this matter.

You can find out more about California Labor Laws from UELG where we are assisting people regularly. These people have been duped and conned by their employers. So get in touch with us and get a free and confidential evaluation of your case.

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Get reimbursement from your employer for using your cell phone for work.

Have you ever been asked by your boss to use your cell phone for official business calls? At Schwan’s home delivery there was no reimbursement for using personal mobile phone for business calls. This irked a service manager named Colin Cochran who filed a suit against his bosses at Schwan’s when they did not agree to reimburse the money he had spent making business calls from his personal cell phone. Soon other service managers too ventured out and jointly they had filed a Class Action lawsuit. The case (Case No. B247160) was heard at the Court of Appeals in California. The court then gave the verdict that if an employee or team member makes use of his/her personal phone for business calls, it is mandatory for the employer to reimburse the proportionate amount of their cell phone bill.

The court referred to Section 2802 of the California Labor Code and based its verdict on it. The summary of the decision is:
The employer has to cover the expenses and/ or losses which an employee has to bear while going about his official duties or while following the orders of his bosses.

Interest may be levied if there is a delay in the reimbursement if it has been awarded by the Division of Labor Standards Enforcement or the court itself. The interest shall be calculated from the date when the employee had to bear the expenses or the losses.
Henceforth the term ‘necessary expenditures or losses’ shall refer to all the reasonable expenses, including the attorney’s fees which the employee had to pay in order to enforce his or her right to this section.

The case will then be redirected to the district court for class-action certification under which the entire class of 1500 members will get the chance to jointly sue Schwan’s Home Service.

If you are working a situation where you have been designated as an independent contractor when you should not be, this often leads to being denied reimbursement for qualifying expenses. We have tried many cases for exactly this reason. Not only could you stand to collect the expenses, but if you were misclassified you could be owed back overtime, wages, interest and penalties. There is a strict 4 year statute of limitations on employment cases like this so DO NOT WAIT, you could be owed a lot of money and UELG helps employees collect. CALL TODAY

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Under the California labor law what determines whether a worker is an independent contractor or an employee depends on several different things, all of which must be well thought-out, but none of which is a sole determinant.

Among many factors are these three important considerations:

• Does the employer have direct control or the power to control the manner and means used by the worker to carry out his/ her work?
• Does the employer supply the worker with the tools and place to implement the work?
• Does the worker have a set schedule or is he/ she at liberty to establish his own schedule?

Generally, California labor law dictates that the more control an employer has over a worker’s day-to-day responsibilities, the more likely the worker is an employee. The less control an employer has over a worker’s day-to-day responsibilities, the more likely the worker is an independent contractor.

What is the impact of a misclassification of workers?

Whether the misclassification of workers by employers is deliberate or not deliberate, the consequence to the employer is the same. California labor law imposes costly penalties on employers who have improperly classified an employee as an independent contractor. Depending on the circumstances, an employer may also be liable for other damages under applicable laws, such as a judgment for wages owed, payroll taxes or medical expenses for a worker who has been injured on the job. California labor laws as well as federal labor laws are strict when it comes to allowing for independent contractor status.

Misclassification of independent contractors prevents workers from enjoying the benefits and protections afforded employees under many of today’s California labor laws, including minimum wage and overtime, meal and rest periods, workers’ compensation, unemployment and disability insurance benefits and anti-discrimination laws. Talk to a California-labor-laws-attorneys.com Lawyer when you are ready we will work for free until we win.

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If you are an independent contractor you are considered a business owner for tax purposes, workers compensation payments, social security, Medicare and basically any programs or benefits afforded to actual employees. So for every person that is not actually an employee, the government could be missing out on money from those wages as well as from the company paying the person for their work.

Businesses like to hire independent contractors because generally they cost less than an actual employee. Independent contractors are not entitled to overtime payments, meal and rest breaks, nor are they given any of the same employee benefits like paid time off or medical or dental coverage unless specified in their IC contract. Employers don’t have to pay into that IC’s social security, they don’t have to file worker comp insurance for them and they don’t have to worry about unemployment benefits either. Most importantly, the term “wrongful termination” would rarely apply regardless of circumstances as they were never actually employed by the company. This could be a breach of contract situation but that all depends on what was written in the contract.

How to know if you are improperly classified as an Independent Contractor

Typically in order to be an independent contractor you must have a lot of independence over your job; you are after all your own business. Here are some red flags:

If you have had any of the above issues you should consult with a labor law attorney because all of the overtime, missed meal breaks and benefits may be owed to you.

Labor law is complex; if you have any questions regarding your employment it is recommended that you contact a San Jose labor law attorney who can help you understand your rights and in many cases will review your situation without charge.

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Question: What Three Government Entities Want to Make Sure You are Paid Properly?

Answer: Department of Labor, the Internal Revenue Service, and Congress.

Our budget deficit has all three of these entities working towards a common goal: tax revenue.
They are putting pressure on employers, big and small, to make sure they are properly classifying their workers. As an independent contractor, you would be responsible for paying your own taxes and you wouldn’t be covered under the company’s worker compensation insurance or unemployment insurance, making it near impossible to get worker compensation if you are hurt, or unemployment benefits if you are fired. Essentially, all of the financial responsibility is on the independent contractor. The employer is relieved of a substantial amount of taxes and insurance costs by hiring independent contractors.

The issue is that companies can’t just decide that you will be an independent contractor. There are specific laws dictating who can and cannot be classified as such. An independent contractor should be independent enough from the company to have control over the following:
Scheduling; the freedom to create and maintain their own schedule so long as major deadlines are met.
Equipment; should be able to chose what type of their own equipment they will use to complete the work, including vehicles.
Uniforms; should not be forced to wear the hiring company’s logo/ uniforms as if they are an employee.
How the task is completed; should not be told in detail how to perform the work. End goals are really all the hiring company should be imposing.

“We Can Help” – The Department of Labor:
Independent contractors are not protected under the Fair Labor Standards Act protections for issues like minimum wage and overtime or other benefits, so often wrongly classified independent contractors do not receive legal protections they are entitled to. The “We Can Help” campaign encourages employees to seek aid from the DOL if they believe they are not being paid correctly or are misclassified. The DOL intends to further focus on fixing worker classification issues in 2011 by adding 90 new enforcement personnel and an additional $12 million to the Wage and Hour Division’s budget.

Even More “Help”- The Internal Revenue Service:
Employee classification is a front runner with the IRS because employers are not required to pay social security, Medicaid, unemployment, or other payroll taxes on independent contractors. In an attempt to rectify these improper misclassifications, the IRS will be adding 100 new enforcement agents and allocating $25 million to investigating misclassification of employees as independent contractors. IRS audits may also impose penalties and require payment of back pay and taxes for workers previously misclassified. The Treasury Department estimates an increase of by $7 billion over the next ten years.

Congress: Proposed Legislation Affects Even Small Employers
Congress offered up new legislation regarding worker classification, The Fair Playing Field Act of 2010. This bill is intended to amend Section 530 of the Revenue Act of 1978, which currently provides a safe harbor for companies to treat employees as independent contractors for tax purposes if the company has a logical basis for treating them as such and has consistently reported their income on Form 1099s. If passed, this bill would eliminate that safe harbor and employers would be open to larger penalties for worker misclassification, even good faith mistakes.
Employee Misclassification Prevention Act is another bill that has recently been proposed. It focuses on classification for purposes of compliance with the Fair Labor Standards Act. That Act was introduced in April 2010 and would create a new FLSA violation: misclassification of an employee as an independent contractor. The Act would also:
Impose notice and record-keeping requirements on businesses with independent contractors,
Impose fines on businesses for each employee misclassification,
Expand FLSA’s anti-retaliation provisions to cover independent contractors, and
Award triple damages for violations of minimum wage or overtime laws for employees wrongfully classified.
The Fair Playing Field Act and the Employee Misclassification Prevention Act are both intended to correct perceived abuse of the independent contractor label. The Acts contain different tests for determining who is an independent contractor and who is an employee, which may lead to even more confusion surrounding the issue.

To be safe you should contact our San Francisco Labor Law Attorney to examine your job duties and work conditions to determine your worker classification status. If you have been improperly classified as an independent contractor, we may be able to help you recover back pay, overtime, and benefits.

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