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An Independent Contractor is defined by California Labor Code section 3353. It states that an independent contractor is a “person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished."
That general law aside, the way to determine if a worker is an employee or an independent contractor requires an analysis of various factors contained in the California common law, employment and statutory provisions of the California Unemployment Insurance Code.
Under California labor law, the basic test for determining whether a worker is an independent contractor versus an employee, and is covered is whether you or your company have the right to direct and control the manner and means by which the work is performed. (ie. Do they work from home, use their own equipment, use their own vehicle, pay their own taxes, do they work for more than just your company, and pay their own expenses).
The federal government has published a checklist of 20 factors to determine for the IRS Federal tax purposes whether the employee is an independent contactor. These factors, found at 4600 IRS manual: They are:
1. PROFIT OR LOSS. Can the worker make a profit or suffer a loss as a result of the work aside from the money earned on the project?
2. INVESTMENT. Does the worker have an investment in the equipment and facilities used to do the work? The greater the investment, the more likely independent contractor status will be found.
3. WORK FOR MORE THAN ONE CLIENT. Does the worker perform services for more than one client at a time?
4. SERVICES OFFERED TO THE GENERAL PUBLIC. Does the worker offer services to the general public?
5. INSTRUCTIONS. Does the business have the right to give the worker instructions about when, where and how to perform the services?
6. TRAINING. Does the business train the worker to do the job in a particular manner?
7. INTEGRATION. Are the worker’s services so important to the business that those services have become a necessary part of the business?
8. HIRING ASSISTANTS. Does the business hire, supervise and pay the worker’s assistants or staff?
9. SERVICES RENDERED PERSONALLY. Does the business require that the worker provide the services personally or may the services be delegated to someone else?
10. WORK HOURS. Does the business set the work hours or is the worker the master of his/her own time?
11. CONTINUING RELATIONSHIP. Is there an ongoing relationship between the worker and the business?
12. WORK PERFORMED ON PREMISES OF BUSINESS. Must the worker perform the services on the premises of the business, or does the business control the route or location where the services are performed?
13. SEQUENCE OF SERVICES. Does the business have the right to control and determine the order in which services are performed?
14. REPORTS REQUIRED. Is the worker required to submit reports accounting for the worker’s actions?
15. PAY SCHEDULE. Is the worker paid by the hours, day, week, or month as opposed to being paid by the job or on commission?
16. EXPENSES. Is the worker reimbursed for expenses for business or travel costs?
17. TOOLS AND MATERIALS. Is the worker provided by the business with the equipment, tools and/or materials necessary to perform the services?
18. EMPLOYER’S RIGHT TO TERMINATE. May the business fire the worker at any time?
19. FULL TIME EMPLOYMENT. Is the individual required to work full time for your company?
20. LIMITATION OF SERVICES. Does the individual limit the availability of his services to the general public?
In California to establish independent contractor status you should have a written agreement (an independent contractor agreement) with its independent contractors and that the independent contractor agreement describes the scope of the work to be performed, the compensation paid, the timing of the work and clearly define the independent contractor’s tax obligations; require the independent contractor has liability insurance, do not set independent contractor’s work hours; do not provide the independent contractor with tools, equipment, software or supplies with which to perform his or her work; do not provide the independent contractor any benefits, which the business provides to its employees, do not retain or terminate or attempt to retain or terminate assistants or employees for or of the independent contractor, make sure that the independent contractor submits invoices for his or her work.
So, each case is different, and all of the factors must be evaluated based upon your business and if the time comes when you need to prove to the California Labor Board or Board of Equalization that the worker was an independent contractor, you will have the proof and documentation.
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