Independent Contractor Defined?

Independent Contractor [“IC”]: a skilled worker in business working on short term projects with a specific end result and no supervision. If not an IC, the worker is an employee and probably also has some direction and control by an employer, is paid wages with state and federal taxes deducted. In California an employee may be fired or quit anytime without cause and without creating any liability for the firing or quitting. An IC is entitled to work as necessary to complete a contract’s end result. But if the principal interrupts the IC properly completing the end result, the principal has beached the contract and is liable for damages to the IC.

ICs work per a verbal or written “contract” defining a project’s specific milestones and end result, is paid an agreed rate of compensation, controls his/her own manner of performing services, and may not quit or be fired and only terminates the contract by completing the defined services, terminating a contract early by mutual agreement, or by one party breaching the contract creating liability. An IC has no benefits or legal protections of an employee.

Every state and the federal government have different but similar tests to determine whether a worker performs services as an IC or employee. California’s general test for employment taxes is “who has the right to control the manner and means of achieving the end result”. If the worker controls the manner and means, such worker may be an independent contractor. If the principal controls the manner and means, then the worker is an employee. But, in either case the law requires a look at several other factors, such as, the right of the principal to terminate the relationship with the worker at any time without cause, which designates employment status.

Then one must consider the “secondary factors” per case law and EDD regulations (California Code of Regulations, Title 22, section 4304-1):

  • Does worker perform services through his/her own business: sole proprietorship or other form of business?
  • Is work performed under the direction of the principal without supervision?
  • Level of skill required to perform the services and accomplish the desired result.
  • Whether the principal or worker provides the equipment, tools, and place to perform the work.
  • Length of time the work will be performed; whether the work is an isolated event or continuous in nature.
  • Method of payment: by time, piece rate, the job, etc.
  • Whether work is part of the regular business of the principal.
  • Whether worker and principal believe they created a relationship of employment or IC.
  • The extent of actual control exercised by principal over the manner and means to perform the services.
  • Is the principal engaged in a business enterprise or does the work benefit an individual.
  • Each general and secondary issue should be categorized as indicating IC or employment. Then all issues are weighed to determine whether more weight falls toward IC or employment. This subjective test allows people to arrive at different conclusions. Chris Schaefer will assist with your application of this test. Call him at (415) 454-2421.

    About Chris

    Chris Schaefer represents small businesses providing preventative law to avoid common traps and mistakes, to make decisions considering alternative risk factors, and to minimize costs and expenses. Chris has vast experience representing businesses which contract with independent contractors with an emphasis on California Employment Development Department Employment Tax Audits. Chris has represented companies as large as AT&T and NEC America and as small as a single photographer.
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