Kara Sears
There are various laws and factors that determine whether someone can be classified as a contractor or an employee. In the US, the Fair Labor Standards Act (FLSA) defines an independent contractor as someone who is in business for themselves, and is therefore not protected by minimum wage and overtime pay requirements. The economic realities of the worker's relationship with the employer are considered, including whether the worker negotiates their pay, decides to accept or decline work, hires their own workers, purchases materials and equipment, and makes investments that support the growth of the business. The degree of control the employer has over the work is also a key factor, with independent contractors having more freedom to work off-site and complete projects at their own discretion. If it is unclear whether a worker is an employee or an independent contractor, Form SS-8 can be filed with the IRS for an official determination. Additionally, California has adopted the ABC test to determine the employment status of workers, and courts use multiple tests to assess whether an independent contractor is misclassified as an employee.
| Characteristics | Values |
|---|---|
| Control | Contractors are generally free to perform services for other clients, work off-site, and are not controlled by an employer. |
| Employment relationship | Contractors are not considered employees and do not have the same rights and responsibilities as employees. They are not protected by minimum wage and overtime pay requirements, nor are they entitled to leave. |
| Payment | Contractors are typically paid by the project, rather than receiving a wage. |
| Tax | Contractors are self-employed and pay self-employment tax. |
| Tools and equipment | Contractors usually provide their own tools, equipment, or materials. |
| Work hours | Contractors are not required to work during established hours. |
| Work instructions | Contractors are given discretion to complete projects and are not given specific instructions by the employer. |
| Work negotiation | Contractors can negotiate their pay, decide to accept or decline work, and hire their own workers. |
| Work ownership | Contractors own the rights to their creative work, unless agreed otherwise. |
| Work relationships | Courts and federal agencies use multiple tests, including the ABC test and Borello test, to determine whether a worker is an employee or contractor. |
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What You'll Learn
- Degree of control: Does the employer control what, how and when the work is done
- Nature of work: Is the worker economically dependent on the employer
- Worker classification: Does the worker have employee benefits and protections
- Worker rights: Can the worker determine pay, work hours, and tools used
- Worker status: Is the worker an employee, contractor, or subcontractor
Degree of control: Does the employer control what, how and when the work is done?
When determining whether a worker is an employee or an independent contractor, one of the key factors to consider is the degree of control exerted by the employer over the worker. This includes looking at whether the employer has control over what work is done, how it is done, and when it is done.
If an employer has the right to control or direct the manner and means by which the worker performs their job, including how the services are performed, then the worker is typically considered an employee. This means that if the employer can dictate the tools, equipment, or assistance used, or control the order or sequence of services to be performed, they are likely directing an employee, not an independent contractor.
On the other hand, an independent contractor typically has more autonomy and control over how they perform their work. They may decide when, where, and how to complete the project, and are usually not given specific instructions by the employer. For example, an app-based driver for a delivery company who can choose when and how many hours to work, and is not restricted to working for a single company, is likely to be classified as an independent contractor.
However, it's important to note that no single factor determines whether a worker is an employee or an independent contractor. The degree of control is just one aspect of the broader analysis, which also includes other factors such as the economic realities of the relationship, the opportunity for profit or loss, and the nature of any investments made by the worker. Courts and federal agencies may use multiple tests, such as the ABC test or Borello test, to evaluate these factors and determine the worker's status.
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![California Public Contract Code [2025 Edition]](https://m.media-amazon.com/images/I/518XH9vxSjL._AC_UY218_.jpg)
Nature of work: Is the worker economically dependent on the employer?
The nature of work is a key factor in determining whether a worker is an employee or an independent contractor. This involves assessing whether the worker is economically dependent on the employer or in business for themselves.
If a worker is economically dependent on the employer, they are likely an employee. Indicators of economic dependence include the employer controlling or having the right to control what the worker does and how they do it. For example, if the employer can determine the work hours, prescribe specific dates and times, or require the worker to accept certain tasks, this suggests economic dependence.
On the other hand, if the worker is in business for themselves, they are likely an independent contractor. This is indicated by factors such as the worker negotiating their pay, deciding whether to accept or decline work, hiring their own workers, purchasing equipment, and engaging in marketing or advertising to expand their business or secure more work. Independent contractors often work remotely and provide their own tools, equipment, or materials. They may also subcontract work to others and complete projects at their own discretion without specific instructions from the employer.
It's important to note that there is no single factor that determines whether a worker is an employee or an independent contractor. Courts and federal agencies use multiple tests, such as the ABC test and the Borello test, to assess the economic realities of the entire working relationship. Additionally, certain industries or professions, such as app-based drivers for transportation companies, may have specific criteria for classifying workers as independent contractors or employees.
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Worker classification: Does the worker have employee benefits and protections?
Worker classification is a complex issue, and there is no one-size-fits-all answer. The determination of whether a worker is an employee or an independent contractor depends on various factors and tests, and it can vary by country and even by state.
In the United States, the Internal Revenue Service (IRS) outlines three categories of evidence to determine whether a worker is an employee or an independent contractor: behavioural, financial, and the type of relationship between the parties. The key factor is the degree of control the employer has over the worker. If the employer has the right to control or direct what the worker does and how they do it, this indicates an employer-employee relationship. Independent contractors, on the other hand, typically have more autonomy and control over how they perform their work.
Additionally, the Fair Labor Standards Act (FLSA) provides guidance on worker classification. Under the FLSA, the economic realities of the worker's relationship with the employer are considered. If the worker is economically dependent on the employer, they are likely an employee. If they are in business for themselves and have opportunities for profit or loss, they may be classified as an independent contractor. Courts and federal agencies may use multiple tests, such as the ABC test in California, to determine worker classification based on the specific circumstances and rights sought.
It is important to note that worker classification has significant implications for benefits and protections. Independent contractors generally do not have the same protections and benefits as employees. For example, they may not be protected by minimum wage and overtime pay requirements, nor are they entitled to unemployment insurance, workers' compensation, or certain anti-discrimination protections. Misclassification of workers can result in penalties for employers and loss of benefits and protections for workers.
To ensure compliance and avoid misclassification, businesses should carefully assess the nature of the work, the degree of control exerted, and the economic realities of the relationship. If there is uncertainty, Form SS-8 can be filed with the IRS for an official determination of worker status.
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Worker rights: Can the worker determine pay, work hours, and tools used?
Worker rights vary depending on whether the worker is classified as an employee or an independent contractor. While employees are generally protected by minimum wage and overtime pay requirements, independent contractors are not. Independent contractors are also not protected from employment discrimination by Title VII, nor are they entitled to leave under the Family Medical Leave Act.
Whether a worker is an employee or an independent contractor is determined by looking at the economic realities of the worker's relationship with the employer. If the worker is economically dependent on the employer for work, then they are an employee. If the economic realities show that the worker is in business for themselves, then they are an independent contractor.
There are a few key indicators that a worker is an independent contractor:
- They are paid by the project instead of receiving an hourly, weekly, or monthly wage.
- They provide their own tools, equipment, or materials.
- They are free to work off-site and are not required to work during established hours.
- They are free to work for other clients.
- They have the opportunity to negotiate their pay, decide to accept or decline work, hire their workers, and market their services.
If a worker is an employee, their employer can control what will be done and how it will be done. If an employer-employee relationship exists, even if the worker is called an independent contractor, the worker is still considered an employee.
In California, the ABC test is used to determine whether a worker is an employee or an independent contractor under the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission (IWC) wage orders. Courts and federal agencies use multiple tests to determine worker classification, and the standards differ depending on the employment rights sought.
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Worker status: Is the worker an employee, contractor, or subcontractor?
Worker status is a critical issue that determines the rights and protections afforded to a worker, as well as the obligations of the employer. The determination of whether a worker is an employee, contractor, or subcontractor is fact-specific and depends on various factors.
Employee vs. Independent Contractor:
The primary distinction between an employee and an independent contractor lies in the degree of control exerted by the employer. An employee is typically subject to a higher degree of control, with the employer dictating what will be done and how it will be done. This includes control over factors such as work hours, work location, and specific instructions. On the other hand, an independent contractor has more autonomy and is usually engaged to achieve a specific result without the same level of control over the means and methods of their work.
Other factors that can help determine worker status include:
- Opportunity for profit or loss: Independent contractors often have more opportunities for profit or loss depending on their managerial skills and initiatives.
- Negotiating pay, accepting or declining work, and hiring their own workers: Independent contractors typically have more freedom in these areas.
- Investments: Independent contractors may invest in the growth of the business by increasing the client base, reducing costs, or expanding the market reach.
- Work for multiple clients: Independent contractors are generally free to work for multiple clients and are not restricted to exclusivity.
Legal Tests:
To aid in determining worker status, various legal tests have been developed, such as the ABC test and the Borello test. The ABC test, adopted in California, sets out specific criteria to determine if a worker is an independent contractor. If the hiring entity cannot meet any part of the three-part test, the worker is not considered an independent contractor. The Borello test, on the other hand, takes a more comprehensive approach, considering all relevant factors on a case-by-case basis, including the nature of the work, the arrangement between the parties, and the purpose of the law.
Subcontractors:
Subcontractors are a type of independent contractor who are typically engaged by a primary contractor to perform a specific task or aspect of a larger project. They operate under the primary contractor and may have certain rights and obligations defined by their contract.
In summary, determining worker status is a complex issue that requires examining multiple factors and, in some cases, applying specific legal tests. Misclassification of workers can result in penalties and liabilities for both employers and workers, so it is essential to understand and apply the appropriate criteria when determining worker status.
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Frequently asked questions
If your employer controls what you do and how you do it, then you are likely an employee. Independent contractors are usually hired for the outcome of their work and are not subject to the same level of control by the employer.
Employees are protected by minimum wage and overtime pay requirements under the Fair Labor Standards Act (FLSA). They are also protected by California's wage and hour laws, workplace safety laws, unemployment insurance, and retaliation laws. On the other hand, independent contractors are not entitled to these protections.
If you believe you have been misclassified, you may file a claim. Under Labor Code section 226.8, the willful misclassification of individuals as independent contractors can result in civil penalties of up to $25,000 per violation.
