Someone who “does work for you” of any kind, and is paid for it, is either an employee or an independent contractor.
For many types of work performed in a small firm, the owner would prefer to have the “worker” be treated as an independent contractor.
Why? Because it’s cheaper and easier to manage, with less governmentally-imposed laws, rules and regulations which dictate what kind of relationship can exist between you and your workers.
If a worker is an “employee”, he/she is subject to California’s wage and hour laws, which include dozens of requirements, including overtime pay for anyone who works more than 8 hours in a day or 40 hours in a week. An independent contractor can work 24 hours straight, without even taking time to sleep or rest, and the employer is not required to pay overtime, or to conform to any other wage and hours laws.
Many business owners mistakenly think that if they pay a worker a “salary” instead of an hourly rate, or pay “by the job,” the worker is deemed an independent contractor.
Not so! The bottom line is that your state (or sometimes the feds) will make the decision for you, and decide whether a particular employee (or all employees in a particular job classification) are employees or independent contractors. And if you and the government disagree, whose opinion takes precedence? Obviously, the state.
Of course, you may be one of the “lucky employers” who improperly treats some employees as independent contractors, but operates for years with it never coming to the attention of a government regulatory body. Then the shoe drops: a disgruntled independent contractor is told to get out and never come back … with plenty of justification, or so you think.
Next thing you know, a form comes in the mail from the California Division of Labor Standards Enforcement, advising you that the disgruntled “independent contractor” who formerly worked at your firm has filed a claim against your company, asserting that the worker should have been classified as an employee. The worker now seeks back pay, overtime pay for some of that back pay, and waiting time penalties. The amount you are asked to pay to settle the matter can easily range into the tens of thousands of dollars.
So, the message is clear: don’t classify any workers as “independent contractors” unless you’re 100% sure that’s a legally-correct classification (well, maybe 99% would be okay too, since the risk to you is still very small). If you have any doubt, contact your attorney promptly to learn what information you need make a correct classification.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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