Misclassification as Independent Contractor

Misclassification as Independent Contractor

One of the most complex areas of California’s labor laws are the differences between Independent Contractors and Employees. As this area of the law is changing at a rapid rate, part of the complexity is due to changing standard and rules differentiating between independent contractors and employees. An independent contractor is a worker who is not an employee. Since an independent contractor is not an employee, he or she is not subject to many of the rules that employees are subject to. Employees may receive paid time off and benefits like health insurance, which independent contractors do not receive. Employees can typically receive overtime pay for excess hours worked, as well as rest breaks and meal periods, which independent contractors do not receive. In some cases, it can be difficult to tell whether a worker is an independent contractor or an employee.

It is very important to determine whether a worker is an independent contractor or an employee for many reasons. One of the biggest reasons is for tax purposes. An employee’s and an employer’s tax liability are determined by the worker’s employment status. If a worker is an employee, the employer must pay social security tax, federal and state unemployment tax, as well as premiums for workers’ compensation in the event the employee gets injured. If a worker is an independent contractor, he or she is responsible for the social security taxes. In addition, employees normally receive paychecks with the taxes withheld and paid to the state and federal taxing authorities, whereas independent contractors receive the entire amount they earn, and are responsible for making payments to state and federal taxing authorities on their own.

There are also benefits that employees receive that independent contractors do not. If an employee is laid off, he or she may get unemployment compensation, which is not available to independent contractors. There are numerous benefits to workers of being an employee versus an independent contractor. However, it’s normally more financially beneficial for employers to classify workers as independent contractors.