Employee or Independent Contractor in California?

If you are a proprietor of a business in California and need to determine whether a worker is an employee or independent contractor?

If so, the basic test is whether you as the principal have the right to direct and control the manner and means by which the work is performed:

"When the principal has the "right of control," the worker will be an employee even if the principal never actually exercises the control. If the principal does not have the right of direction and control, the worker will generally be an independent contractor. If it is not clear from the face of the relationship whether the worker or the principal has the "right of control," reference is made to a list of secondary factors that are evidence of the existence or nonexistence of the right of control."

California Division of Labor Standards Enforcement (DLSE) and Employment Development Department (EDD) are mainly concerned whether you as the principal are in compliance with California's wage, hour and workers' compensation laws.

In California, the Franchise Tax Board (FTB), Division of Workers' Compensation (DWC) and the Contractors State Licensing Board (CSLB) also have their own regulations pertaining to this issue.

In addition, the IRS uses factors divided according to the degree of control as it relates to behavior, finances, and the relationship between the parties. (http://www.irs.gov/pub/irs-utl/emporind.pdf)

The potential liabilities and penalties are significant if you misclassify an employee as an independent contractor. As such, if you are in the position of making this determination, please contact a qualified attorney to help make this assessment for your business.