When Employers Claim Employees are Independent Contractors

independent contractorsFor some companies, labeling employees as independent contractors has not turned out to be such a great money-saving idea after all. Some companies will do anything to save themselves a buck, even if it harms workers and violates state and/or federal law. This appears to have been the case for CMI Transportation, K&R Transportation California, and Cal Cartage Transportation Express, all subsidiaries of NFI Industries,

Claims in the Case

According to court documents regarding these port-trucking companies,workers were classified as independent contractors, and were then hired to get products transported. This saved the companies a boatload of money, but how?  

The Cost of Doing Business

The Bureau of Labor Statistics determined that wages account for roughly 70% of employee compensation, while benefits take up the additional 30%. So, if employers can avoid benefits that are mandated by law, such as Social Security, unemployment insurance, workers’ compensation, and Medicare, they can really make out well. Additionally, they never have to go to the bargaining table to discuss issues like vacation pay, sick pay, pensions, paid leave, and the like.

Employees or Independent Contractors?

With the huge savings associated with hiring independent contractors, why does every business not label workers that way? The fact is that making such determinations is not a matter of personal choice. There are legal questions to consider. Answering yes to one or more of these questions likely means workers are employees, deserving of all benefits the law dictates:

  • Is the business reliant on the work in order to do business? Someone who lays carpet in a department store is not essential to daily business operations, whereas clerks and warehouse workers are.
  • Is termination without cause a right of the employer? If so, the worker is not an independent contractor who can only be terminated only if the terms of the contract are violated.
  • Is the worker considered to be semi-skilled or unskilled? If so, they are the target audience for protections by the California Unemployment Insurance Appeals Board.
  • Did the employer train the worker? Independent contractors usually provide a service for which they are already certified.
  • Is the worker expected to provide his or her own supplies for the job? Employers do not generally provide tools and such to independent contractors.

Independent Contractors and the Consequences of Misclassification

In California, there is a big price to pay when employers intentionally misclassify their workers. In one case, a judgment for $13 million was won when janitors were misclassified as independent contractors by a couple of companies. What will happen in the trucking lawsuit remains to be seen. [Read more…]

Employee or Independent Contractor?

contractorLet’s say an employer hires you and suggests that you accept independent contractor status rather than being labeled as a regular company employee. To sell the idea, the simple tax form and reduced monthly deductions you would be required to pay are put on the table. What should you do?

Who Determines Independent Contractor Status?

To be clear, employers are not allowed to make this determination willy-nilly, even though there are noteworthy benefits to employers who engage independent contractors. Hiring an individual as an employee has significantly different requirements for employers than hiring that same individual as an independent contractor. The benefits are so tempting, in fact, that employers could face significant penalties when they erroneously classify an employee as an independent contractor. Several government agencies oversee classification controversies, including the Division of Labor Standards Enforcement (DLSE), and the Employment Development Department (EDD).

Employer Benefits of Hiring Independent Contractors

Tax forms and withholding amounts differ, as well as employer tax burdens. Sometimes employers might prefer to have independent contractors in order to avoid payroll taxes, overtime and minimum wage requirements, rest and meal breaks, worker’s compensations insurance, social security, disability insurance, and reimbursements for business expenses.

Are You an Employee or an Independent Contractor?

Because the law does not specifically call out a definition of an independent contractor, court interpretations and agency precedents must be relied upon to make individual determinations.  The Division of Labor Standards Enforcement (DLSE) starts with the presumption that an individual is an employee, and then applies several tests to determine whether or not independent contractor status is appropriate.

The primary consideration is whether or not the employer has the right to control how tasks are accomplished. For instance, an employee performing janitorial tasks may be required to use particular cleaning products, whereas an independent contractor who performs those same janitorial services is simply held to completing the task by whatever means he or she feels appropriate.

Several other factors are considered, including:

  • Whether or not the individual performing the services does so separate from the employer;
  • Whether or not the individual supplies the space, tools, and materials required for the job;
  • Whether or not specialized skills are required for the task;
  • Whether payment is dependent on time or job completion.

Three factors that indicate an employer/employee relationship, regardless of other factors, include:

  • The primary control of the operation lies squarely with the employer;
  • The duties of the worker are key to the success of the business;
  • Detailed supervision of the work is inessential due to the nature of the work.

[Read more…]

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