Determining Employment Status - Employee v. Independent Contractor

Just because a person gets paid to work for another does not automatically mean that one is by default an employee. An employer may wish to classify a person as an independent contractor for many reasons, such as pay payroll taxes, the minimum wage or overtime, compliance with other wage and hour law requirements such as providing meal periods and rest breaks, or reimbursement of workers for business expenses incurred in performing their jobs.

There are no set rules for classifying a worker as an employee, rather than an independent contractor. Thus, one must look to the interpretations of the courts and enforcement agencies. Below are the factors set out by the Department of Labro Standards Enforcement in determining a person's employment status:

1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;

2. Whether or not the work is a part of the regular business of the principal or alleged employer;

3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;

4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;

5. Whether the service rendered requires a special skill;

6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;

7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;

8. The length of time for which the services are to be performed;

9. The degree of permanence of the working relationship;

10. The method of payment, whether by time or by the job; and

11. Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

Even where there is an absence of control over work details, an employer-employee relationship will be found if (1) the principal retains pervasive control over the operation as a whole, (2) the worker’s duties are an integral part of the operation, and (3) the nature of the work makes detailed control unnecessary. (Yellow Cab Cooperative v. Workers Compensation Appeals Board (1991) 226 Cal.App.3d 1288)

Other points to remember in determining whether a worker is an employee or independent contractor are 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 form rather than a W-2 form is also not determinative with respect to independent contractor status. (Toyota Motor Sales v. Superior Court(1990) 220 Cal.App.3d 864, 877)

Source: http://www.dir.ca.gov/dlse/FAQ_IndependentContractor.htm