HR Management & Compliance

The Test for Employee vs. Independent Contractor in California

Yesterday, we looked at some of the federal tests for determining whether a worker is an employee or an independent contractor for wage/hour purposes. What factors does California look at?

A Clarification That’s Essentially Meaningless

A May 2010 decision by the California Supreme Court clarified that the IWC Wage Order definition of “employee” governs the laws regarding wages, hours, and working conditions. Unfortunately, the Wage Orders vaguely define an “employee” as “any person employed by an employer.” Helpful, huh?

Under the Wage Orders, “to employ” means to “engage, suffer, or permit” someone to work for you. Again, this is not a particularly useful definition.

The simplest—and safest—approach is to assume that any person who does work for you that is part of your company’s business (who does some part of the work necessary to make the goods or provide the service that is the business of your company) is an employee rather than an independent contractor.

The Borello Test

If you want to take a more nuanced approach, you’ll need to examine the California-specific test for determining if a worker is an employee or an independent contractor.

You should keep in mind that simply labeling someone an independent contractor will not settle the issue, nor will having workers sign documents agreeing to be treated as independent contractors.

Likewise, paying someone on an Internal Revenue Service Form 1099 basis does not determine whether the person is an employee. The IRS and the California Franchise Tax Board have their own tests for determining who is an employee for purposes of payroll taxes.

How to Comply with California Wage & Hour Law—newly updated for 2012!

With respect to wage and hour requirements, California uses the “Borello test”—which strongly favors a conclusion that workers are employees.

The test examines the total circumstances of the relationship between the business and the person performing the work, in light of the following 11 factors:

1. Whether the person performing work is engaged in an occupation or business that is distinct from that of the company;

2. Whether the work is part of the company’s regular business;

3. Whether the company or the worker supplies the equipment, tools, and the place for the person doing the work;

4. The worker’s financial investment in the equipment or materials required to perform the work;

5. The skill required in the particular occupation;

6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the company’s direction or by a specialist without supervision;

7. The worker’s opportunity for profit or loss depending on his or her own managerial skill (a potential for profit does not include bonuses);

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8. How long the services are to be performed;

9. The degree of permanence of the working relationship;

10. The payment method, whether by time or by the job; and

11. Whether the parties believe they are creating an employer/employee relationship.

Although no single factor in the Borello test is determinative, the first one—whether the individual’s work is the service or product that is the company’s primary business—is given the most weight.

Don’t Become the Next Court Case

Whenever you’re dealing with issues relating to independent contractor classifications and wage/hour generally, your best defense is a strong offense.

We think the best weapon out there for California employers is our newly updated 2012 edition of our HR Management & Compliance Report, How To Comply with California Wage & Hour Law.

This information-packed guide, written by an experienced California employment lawyer, features in-depth coverage of all the topics you need to know about in an easy-to-read, quick-reference style:

  • The California Labor Code vs. the federal Fair Labor Standards Act (FLSA)
  • Who the California wage/hour laws apply to
  • The Wage Orders that cover your organization
  • Hours of work—including travel time, make-up time, meal and rest periods, and the definition of “hours worked”
  • The rules for hourly, salary, and piece-rate pay
  • Bonuses, profit-sharing plans, and tips
  • Overtime and double-time wages
  • Alternative workweeks
  • Tools and equipment, uniforms, and work-related expenses and losses
  • Paid time off—vacation, PTO, holidays, and sick leave
  • Unpaid time off
  • When and how employees must be paid
  • Payment of final wages upon termination
  • Deductions from pay
  • Recordkeeping requirements
  • Pay-related discrimination
  • A new appendix of key cases you need to know about
  • And much more!

Order your copy now and try it out risk-free for 30 days. If you’re dissatisfied in any way, just return it within 30 days for a full refund.

Now’s the perfect time to get yourself prepared for 2012. Order your copy of the new edition of How To Comply with California Wage & Hour Law today.

Download your free copy of Paying Overtime on Bonuses: A Calculation Guide today!


3 thoughts on “The Test for Employee vs. Independent Contractor in California”

  1. Are any of the different agencies (IRS, FTB, DOL, etc.) swayed by the findings of the other agencies? E.g., would the IRS be influenced if a California employer can show a worker was clearly an independent contractor under the Borello test?

  2. Are any of the different agencies (IRS, FTB, DOL, etc.) swayed by the findings of the other agencies? E.g., would the IRS be influenced if a California employer can show a worker was clearly an independent contractor under the Borello test?

  3. The problem with this test is that it’s basically worthless with virtual employees who do work involving any kind of IP. Those workers typically work from home (the employer doesn’t pay for the place of work) and they all have home computers (the employer doesn’t pay for the equipment) but those could be employees or IC’s. So this test does not distinguish between them.

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