For small businesses, hiring independent contractors is widely used practice because of their cost efficiency. Independent contractors, do not need to be given the benefits of a normal employee as they are not protected under California’s wage and hour laws. However, the division between an employee and an independent contractor is often misunderstood by employers.
For example, simply because a worker wishes to be treated as an independent contractor does not make them one. Nor is a written contract classifying the worker as an independent contractor enough. The language used can still be influential in court, however words such as “worker”, “client” and “service provider” are usually associated with an independent contractor while words like “hire” show and employee-employer relationship. But it is still important to remember this type of language in a contract does not provide security against mislabeling a worker.
This confusion can create numerous issues involving liability and violation of California wage and hour laws. Furthermore, Government agencies such as the IRS, Division of Labor Standards Enforcement (DLSE), and the California Employment Development Department (EDD) may also prosecute a company for misclassifying a worker. These penalties include stop orders, which prevent an employer to from using employee labor until compliance with Labor Code § 3700. Additionally tax liability and penalties are likely to be brought against an employer for failing to properly pay an employee. Worst of all, criminal charges could even be brought on the company under Labor Code § 3700.5. This means large fines could be levied against the employer and jail time of up to one year could be given.
Since the severity of the possible punishments is great, it is extremely important to establish the correct worker/employer relations. In part two of this article ways to distinguish the two will be covered.