When distinguishing an employee from an independent contractor in California, remember that the existence of a written agreement purporting to establish an independent contractor relationship is not determinative (Borello, Id. at 349), and the fact that a worker is issued a 1099-MISC form rather than a W-2 form is also not determinative with respect to independent contractor status (See, Toyota Motor Sales v. Superior Court (1990) 220 Cal.App.3d 864, 877).In California, several state agencies are involved in the determination of independent contractor status.
The actual determination of whether a worker is an employee or an independent contractor depends on a number of factors, all of which must be considered and none of which is controlling by itself.
The following checklist (derived from California EDD) is intended to help make the determination of whether a worker is an independent contractor or an employee.
Questions 1 through 3 is significant questions. If the answer to any of them is “Yes,” it is a strong indication that the worker is an employee, and you have a high probability of risk if you classify the worker as an independent contractor.
- Do you instruct or supervise the person while he or she is working?
Yes _____ No _____
Independent contractors are free to do jobs in their own way, using specific methods they choose. A person or firm engages an independent contractor for the job’s end result.
When a worker is required to follow company procedure manuals or is given specific instructions on how to perform the work, the worker is normally an employee.
- Can the worker quit or be discharged (fired) at any time?
Yes _____ No _____
If you have the right to fire the worker without notice, it indicates that you have the right to control the worker.
Independent contractors are engaged to do specific jobs and cannot be fired before the job is complete unless they violate the terms of the contract. They are not free to quit and walk away until the job is complete. For example, if a shoe store owner hires an attorney to review his or her lease, the attorney would get paid only after satisfactory completion of the job.
- Is the work being performed part of your regular business?
Yes _____ No _____
Work that is a necessary part of the regular trade or business is normally done by employees. For example, a sales clerk is selling shoes in a shoe store. A shoe store owner could not operate without sales clerks to sell shoes. On the other hand, a plumber engaged to fix the pipes in the bathroom of the store is performing a service on a one-time or occasional basis that is not an essential part of the purpose of the business enterprise. A certified public accountant engaged to prepare tax returns and financial statements for the business would also be an example of an independent contractor.
All three questions are trying to find out if the employer controls the work.
- Does the worker have a separately established business?
Yes _____ No _____
When individuals hold themselves out to the general public as available to perform services similar to those performed for you, it is evidence that the individuals are operating separately established businesses and would normally be independent contractors. Independent contractors are free to hire employees and assign the work to others in any way they choose. Independent contractors have the authority to fire their employees without your knowledge or consent. Independent contractors can normally advertise their services in newspapers and publications and seek new customers through the use of business cards.
- Is the worker free to make business decisions that affect his or her ability to profit from the work?
Yes _____ No _____
An individual is normally an independent contractor when he or she is free to make business decisions that affect his or her ability to profit or suffer a loss. These decisions involve real economic risk, not just the risk of not getting paid. These decisions would normally involve the acquisition, use and disposition of equipment, facilities and stock in trade, which are under his or her control. Further examples of the ability to make economic business decisions include the amount and type of advertising for the business, the priority in which assignments are worked, and selection of the types and amounts of insurance coverage for the business.
- Does the individual have a substantial investment that would subject him or her to a financial risk of loss?
Yes _____ No _____
Independent contractors furnish the tools, equipment and supplies needed to perform the work. Independent contractors normally have an investment in the items needed to complete their tasks. To the extent necessary for the specific type of business, independent contractors provide their own business facility.
Are they a going concern and make profit and loss decisions.
Questions 7 through 13 are additional factors that should be considered. A “Yes” answer to any of these questions is an indication the worker may be an employee, but no one factor by itself is deciding. All factors must be considered and weighed together to determine which type of relationship exists. However, the greater the number of “Yes” answers to questions 7 through 13, the greater the likelihood the worker is performing services as an employee.
- Do you have employees who do the same type of work?
Yes _____ No _____
If the work being done is generally the same as the work normally done by your employees, it indicates that the worker is an employee. This standard applies even if the work is being done on a one-time basis. For instance, to handle an extra workload or replace an employee who is on vacation, a worker is hired to fill in on a temporary basis. This worker is a temporary employee, not an independent contractor.
(Note: If you contract with a temporary agency to provide you with a worker, the worker is normally an employee, but may be an employee of the temporary agency. You may wish to request EDD’s Information Sheet “Temporary Services and Employee Leasing Industries”(DE 231F) on the subject of temporary service and leasing employers.)
- Do you furnish the tools, equipment or supplies used to perform the work?
Yes _____ No _____
Independent businesspeople furnish the tools, equipment, and supplies needed to perform the work. Independent contractors normally have an investment in the items needed to complete their tasks.
- Is the work considered unskilled or semi-skilled labor?
Yes _____ No _____
The courts and the California Unemployment Insurance Appeals Board have held that workers who are considered unskilled or semi-skilled are the type of workers the law is meant to protect and are generally employees.
- Do you provide training for the worker?
Yes _____ No _____
In skilled or semi-skilled work, independent contractors usually do not need training. If training is required to do the task, it is an indication that the worker is an employee.
- Is the worker paid a fixed salary, an hourly wage or based on a piece-rate basis?
Yes _____ No _____
Independent contractors agree to do a job and bill for the service performed. Payments to independent contractors for labor or services are made upon the completion of the project or completion of the performance of specific portions of the project.
- Did the worker previously perform the same or similar services for you as an employee?
Yes _____ No _____
If the worker previously performed the same or similar services for you as an employee, it is an indication that the individual is still an employee.
- Does the worker believe that he or she is an employee?
Yes _____ No _____
Questions 7 through 13 Are designed to see how they perform the services. How and with what tools will indicate employee or Independent Contractor. “Yes” answer to any of these questions is an indication the worker may be an employee. Having other employees doing the same work is a sign that they are really an employee.
While the intent of the parties is a consideration is a factor to consider when making an employment or independent contractor determination. When both the worker and the principal believe the worker is an independent contractor, an argument exists to support an independent contractor relationship between the parties.
the EDD website atwww.edd.ca.gov/Payroll_Taxes/
Source: California Employment Determination Guide (EDD website) DE 38 Rev. 2 (4-09)