In California, as it is with essentially any state, the laws for employing, paying, and recording usage of an independent contractor vary greatly from those of simply hiring a company employee. In many instances, usage of independent contractors can alleviate strains placed upon you or your business due to employment laws, especially the strident restrictions and prohibitions of California’s. Though, applying the title of an independent contractor to someone does not make them an independent contractor. So what does? What are the laws and stipulations of hiring an independent contractor? How will it help my business in California to know and understand the usage of these laws? Keep reading for the need to know laws and legal information on independent contractors in California.

The Legal Definition of an Independent Contractor in California

Classifying an independent contractor could be one of the most important aspects of the legal relationship with the person at hand. Many fall victim to the belief that by operating under certain conditions they will be unaffected by misclassification penalties, but this is simply not true and it is important as a business owner to learn the definitions used by governmental agencies in their definition of independent contractors. One of the most important factors in determining if someone is an independent contractor or employee is the right to manage the manner and means of accomplishing the desired result. In California, courts and agencies have generally applied common law practice in determining the status of independent contractors.

Compensation, Federal Taxes, and Hourly Wages of Independent Contractors

As mentioned previously, the laws for compensation, taxes, and hourly wages of independent contractors varies greatly from that of company inducted employees. Recently the California Supreme Court have applied six further conditions as to determine the status of independent contractors and have discarded the common law test as the sole means of definition. This decision has impacted not only worker’s compensations but other employee-related matters also.

The IRS is responsible for determining the relationship between a company and employee on a federal level and misclassification on a company level can lead to your business incurring large government penalties as well as employment taxes. Misclassification can also be particularly troublesome for businesses at this level as they may lead to aggressive audits and financial penalties by the IRS. During wage claim processes or audit proceedings, the California Labor Commission is responsible for determining the true relationship between an individual and company. This is commonly done by using the right to control as well as several other factors as determined by the California Supreme Court.

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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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