How to Correctly Classify Your Employees


Classification of workers as employees or independent contractors is an important decision with many legal consequences. Incorrect classification can result in significant expenses, efforts, and administrative consequences, not to mention tax consequences and legal liability.  The experienced employment attorneys at Startup Company Counsel can help California business owners correctly classify their employees and avoid the legal, tax, and administrative consequences of improperly classifying workers.

Employee v. Independent Contractor

In general, an employer has greater control over an employee than an independent contractor. An employer can dictate an employee’s hours, break periods, workplace conduct, and many other aspects of his or her employment. By contrast, independent contractors are usually only responsible for delivering a finished product (or service) to an employer. Independent contractors retain much of the control over the manner and method of their work. Case law and state statutes have developed tests to identify the difference between an employee and an independent contractor. In 1989, the Supreme Court of California issued a case opinion which created a “control test” to determine whether workers were employees or independent contractors. There are eight factors to be examined by a court, and in performing this test, no single factor determines whether the worker is an employee or independent contractor. Instead, the court performs a “legal calculus” of all factors, weighing the factors differently as is appropriate in the particular situation.

Even with the legal test prescribed by the Court, it can be difficult to distinguish between the two. This is a particular problem in today’s “gig” economy. Many workers have part-time and supplemental jobs, and these jobs often require an analysis of “legal calculus.” In 2016, Uber settled a lawsuit with drivers in California and Massachusetts over their classification as independent contractors. The Verge reports that Uber paid a $100 million settlement to the drivers. In exchange, the company was allowed to continue classifying its drivers as independent contractors. GrubHub is also facing a California lawsuit over the classification of its delivery drivers. According to Quartz, GrubHub classifies its drivers as independent contractors and provides them with 1099 tax forms to that effect. The driver suing GrubHub claims that he was treated as an employee, subject to the company’s control. The outcome of this case could affect thousands of workers and millions of dollars in unemployment tax revenue across the state.

As these cases demonstrate, classification cases are subjective and highly dependent upon the particular facts of a given employment situation. This is why it is so important for employers to seek the advice of an experienced California employment law attorney who can help them determine how to classify their employees.

Strategic Legal Solutions For All Your Staffing Needs

At Startup Company Counsel, our experienced employment attorneys know how to connect new business owners with the legal tools which will best meet their staffing needs. Schedule a consultation today by calling (855) 353-5377, emailing, or submitting a request through our online contact form. We can help your business meet staffing and compliance needs in the most efficient and cost-effective manner possible.

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