Contract Worker vs. Employee: Pleasanton Businesses Must Know the Difference
It is important for businesses to properly classify workers as while classifying a worker as an independent contractor may be more cost efficient upfront, properly classifying a worker will help avoid a lawsuit as well as significant risk of liabilities and penalties.
How to Classify Your WorkersWhile there is no set definition of an independent contractor, the actual determination of a worker's classification depends on several factors, known as the economic realities test, all of which must be considered, but none is controlling in and of itself. The mere fact that a worker is issued a 1099 as opposed to a W-2 is not determinative. Some of the factors include:
1. The employer has control or the right to control the how the worker performs the work and the manner and means in which it is performed;
2. The individual performing services is engaged in a business or occupation different from that of the employer;
3. The work is part of the employer's regular business;
4. The employer or the worker supplies the tools, instruments, and the place for the individual doing the work;
5. The worker's investment in materials or equipment required by the task or the employment of assistants;
6. The method of payment is by the time or by the job; and
7. The services provided require a specialized skill.
Other FactorsOther factors include the type of occupation and whether it is usually performed in the locality under the direction of an employer or by a specialist without supervision, the worker's opportunity for profit or loss depending on managerial skills, the length of time during which the services are to be performed, and if the parties believe they are creating an employer-employee relationship.
The existence of a written agreement purporting to establish an independent contractor relationship is not determinative of classification, but helpful.