Beware of Independent Contractor Status

So you would rather use independent contractors? Yes, we understand it’s much less headache: no workers’ compensation, no withholding, no payroll, no employment law liability, right? Wrong if you are negotiating with the EDD, DOL, Labor Commissioner or other friendly neighborhood bureaucrats.

The Crackdown

The EDD and the federal Department of Labor in particular, seem to be on a mission to convert all so called independent contractors into employees. This of course is for the sake of the poor contractor that needs to be protected. In the meantime they’ll readily send you assessments in the six figures for personal income tax, state disability income, unemployment insurance and employment training taxes and overtime.

The Misconceptions

The distinction between an independent contractor and employee as ultra critical for all of the above mentioned reasons. Many misconceptions can cause problems:

• My workers come and go as they please so they must be independent contractors;
• I send them a 1099, not a W2 at the end of the year (this is the consequence of having true IC’s, but it is not the legal analysis);
• They have other businesses or work for others on the side.

Unfortunately, the legal analysis is more complex than that, very fact intensive and very gray. All this means is whoever is deciding the facts can twist them to achieve the desired result, usually employee not independent contractor status. While the “right to control” the manner, means, method and mode of performing the details of the work is the key test, there are many other “factors” all of which are designed to see if the worker truly has their own independent business from yours.