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What should I know about worker classification?

Worker classification is a hot topic, especially in California because of a recent change in the definition of independent contractor. When employers wrongly classify a worker, it can create a bad situation when it comes to taxes and employee rights.

According to the California Department of Industrial Relations, independent contractors do not have many of the rights of employees, such as workers’ compensation or unemployment. They also do not get benefits, such as health insurance. California recognized that some employers may take advantage of the savings by classifying workers as independent contractors but treating them like employees.

Definition of independent contractor

According to the current law, for a worker to be an independent contractor, certain circumstances must be present. Employers cannot have control over the performance of work, such as when and where a worker does it. The duties the worker does cannot be a part of the main business of the employer. Lastly, the worker must be a part of an independent trade, occupation or business that is the same as the work he or she performs for the employer.

Important points

Anything the employer does that exerts control over the worker can violate the rules and make them an employee and not an independent contractor. Essentially, an employer will only use independent contractors to do work that is not the main business offering of the company. For example, if the business sells ice cream, the independent contractor cannot be someone working in the business to make the ice cream or sell it.

Note that California law is much more strict than the federal definition the IRS uses. The IRS focuses mostly on the control an employer has over the worker when making the distinction.