Whether someone is an employee or an independent contractor or an employee is context dependent; someone may be an employee under one law and found to be an independent contractor under another. The tests are often different. For example, the test used for federal tax purposes may vary a great deal from the test used in a sexual harassment case, which may vary greatly from the test used in workers' compensation cases. It is therefore important to consult a legal professional regarding the application of law to any given set of facts. The information below is for general background purposes only and should not be relied upon in making decisions; consult an attorney before making any decision regarding employee/independent contractor law.
Distinguishing Between Employees and Independent Contractors for Federal Tax Purposes
According to governmental tax publications an employer is required to withhold income taxes, withhold and pay social security and Medicare taxes, and pay unemployment tax on wages paid to an "employee." In contrast, an employer is generally not required to withhold or pay any taxes on payments to independent contractors.
The general rule is that an individual is an independent contractor if you (the person for whom the services are performed) have the right to control or direct only the result of the work, and not what will be done and how it will be done or method of accomplishing the result.
People such as lawyers, contractors, subcontractors, public stenographers, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. However, whether such people are employees or independent contractors depends on the facts in each case.
Distinguishing Between Employees and Independent Contractors Under FEHA
The California Fair Employment and Housing Act or "FEHA," not only offers protection to employees; it also protects "persons performing services pursuant to contract" under certain circumstances. For example, FEHA's protects both employees and persons performing services pursuant to contract by redefining an employer for purposes of the anti-harassment division of the act as "any person regularly employing one or more persons or regularly receiving the services of one or more persons providing services pursuant to a contract." Additionally, the employer has a duty not to allow anyone to sexually harass its employees or persons performing services pursuant to contract. Therefore, an entity must not knowingly allow sexual harassment to occur irrespective of whether the person being harassed is an employee or independent contractor and irrespective of whether the person doing the harassing is an employee, contractor, or even a customer or other person. In other circumstances, FEHA may not offer any protection to independent contractors.
Distinguishing Between Employees and Independent Contractors Under Workers' Compensation Law
California Labor Code section 3353 states, "'Independent contractor' means any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished." However, "[t]he label placed by the parties on their relationship is not dispositive, and subterfuges are not countenanced." (S.G. Borello & Sons v. D.I.R. (1998) 48 Cal.3d 341, 349).
The Act must be liberally construed to extend benefits to persons injured in their employment. (§ 3202.) One seeking to avoid liability has the burden of proving that persons whose services he has retained are independent contractors rather than employees. (§3357, 5705, subd. (a).) Therefore, "California tests for independent contractor status must be supplemented in compensation cases by consideration of the remedial purpose of the statute, the class of persons intended to be protected, and the relative bargaining positions of the parties. (E.g., Truesdale v. Workers' Comp. Appeals Bd. (1987) 190 Cal.App.3d 608; Germann, supra, 123 Cal.App.3d at p. 784; Johnson v. Workmen's Comp. Appeals Bd. (1974) 41 Cal.App.3d 318, 322-323)."
The foregoing are but a few examples in which the determination of employee vs. independent contractor status may be treated differently under the law. Please consult a qualified attorney for more information.