If your boss gives you a 1099 tax form each year, does that mean you are an independent contractor? What if you signed an independent contractor agreement? What if you submit invoices to your boss to be paid?
The answer may surprise you.
Every year millions of workers are misclassified as independent contractors, illegally denying them a slew of legal protections: minimum wage, overtime, meal breaks, rest breaks, mileage expense reimbursement, and other rights provided by state and federal labor codes. By one account, the federal government estimates that it loses $3-4 billion annually in tax income and employment tax revenues due to worker misclassification. That represents only a small fraction of the actual wages lost by the hard working employees who are victims of this common form of wage theft.
When workers are cheated out of even a small portion of their wages, it can lead to unpaid bills and sleepless nights for them. Sometimes the employers who engage in worker misclassification simply don’t know the law. All too often, however, they know exactly what they’re doing and should be punished. Fortunately, misclassification triggers a wide range of civil damages, hefty penalties, tax liability, and sometimes even criminal charges against the employer.
Below is the legal test for determining if you are misclassified as an independent contractor:
California’s Multifactor Test to Determine Classification
California courts look for 10 signs of an independent contractor relationship, as first established by the California Supreme Court in the 1989 case of S.G. Borello & Sons v. Department of Indus. Relations. The signs or “factors” must be viewed together as a whole, with no one particular factor controlling. If your answer to any of the following 10 questions is “yes”, then a judge may find that you are an employee, not an independent contractor, and you may be entitled to a hefty award of damages and penalties. Obviously, the more yeses you answer, the better your chances. It is important to note that misclassification of the employment relationship is a question of fact that must be determined either by a judge in a bench trial or by a jury in a jury trial.
Factor 1-Right to Control:
Does your employer have the right to control how you do your work? This is hands down the most important factor to be considered. Whether your employer actually exercises the right to control your work is irrelevant, rather it is whether or not your employer has the right to control the manners and means of accomplishing the work you perform (in other words, control over the details). Some amount of freedom of action does not turn you into an independent contractor so long as your employer has general supervision and control over how you do your work.
Factor 2-At Will:
Is your employment relationship at will? An employment relationship where the employer can fire you at any time for any (or no) reason suggests you are an employee rather than an independent contractor. Unless you have a contract or union agreement with your employer, you are probably an at-will employee, like almost every other employee in California.
Factor 3-Part of the Regular Business:
Is the work you do part of the regular business of your employer? If your employer is a retailer and you do sales, or if your employer is a restaurant and you do the cooking or serving, then your work is part of the regular business of the employer and you are probably an employee, not an independent contractor. If on the other hand, you just paint the outside of the restaurant, or you install and maintain the computers and internet for the retail store, then your work is incidental to the employer’s regular business and you may be an independent contractor.
Factor 4-Equipment, Tools, Place of Work:
Does your employer supply you with equipment, tools, and a place to work? If you are a painter and your employer provides the paint and brushes, or if you are a graphic designer and your employer provides you with a computer and workstation, you are probably an employee, not an independent contractor.
Factor 5-Pay by Hour or by Job:
Are you paid by the hour rather than by the job? For this, you should take a look at your paystub (or invoice). Does it show an hourly rate for you? If so, then you may be an employee, not an independent contractor.
Factor 6-Only Occupation or Business:
Is the work you do for your employee your only occupation or business? If you have other jobs, or you run your own business outside of work, then the answer is no and you may be an independent contractor, not an employee,
Factor 7-No Specialized or Professional Skill:
Can the work you do for your employer be done without a specialized or professional skill? In many cases, you need to look at whether the kind of work you do requires a certain type of certification, license or degree. If so, you may be an independent contractor.
Does the kind of work you do usually require a supervisor watching over you? True independent contractors can usually work alone without needing a supervisor to look over their shoulder. For example, web designers who make websites for businesses usually work by themselves, without supervision from their clients. If you need to be supervised, then you are probably an employee, not an independent contractor.
Factor 9-Long Period of Time:
Is the work you do meant to be performed over a long period of time? Independent contractors usually work on short-term assignments with a defined end date. If your employment has no defined end date (quitting, being fired or being laid off don’t count, of course), then you are probably an employee, not an independent contractor.
Do you and your employer believe and act like you have an employer-employee relationship? If your employer issues you a W-2, puts you on their payroll, or treats you like an employee in front of customers and co-workers, then you are probably an employee, not an independent contractor.
So how did you do on the test? Keep in mind, your score is only a rough indicator of the likelihood a judge or jury will find that you are misclassified as an independent contractor. That having been said, if you answered “yes” to even one of the above questions, you should definitely consider talking with a labor lawyer or attorney. Ask for a free, confidential consultation. You could be owed thousands of dollars for illegal misclassification.
Kevin Panahi, Esq, is the author of this guest post. Kevin is a Bay Area employment attorney and author of Recovery My Wages, a Bay Area wage and hour law blog.