The following chart compares the factors used by six government agencies to determine if a worker is an independent contractor or an employee.
It is important to keep in mind that simply calling someone an independent contractor and/or by providing the person with a 1099 does not ensure that the worker will meet the legal requirements.
The risks for employers who misclassify a worker as an independent contractor are significant and include back taxes, penalties, interest, unpaid personal incomes taxes of the misclassified worker, overtime, benefits, leave entitlement, and other rights and protections due to employees. Effective January 1, 2011, California law renders the actual act of misclassification unlawful and subjects the employer to civil penalties of $5,000 to $25,000 per occurrence plus other significant disciplinary action. This handout should serve as a generic summary of the very complex factors that various agencies use to make their determinations. There is, however, no substitute for case-specific advice regarding a particular worker. We strongly suggest that, in addition to our assistance, you seek legal counsel from an attorney experienced in this particular area of employment law, and/or a formal, written determination from the EDD and/or the IRS.
For more information, please contact us.