HR Practice Pointer: Determining Worker Status- Independent Contractor vs. Employee

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Published on Saturday, 11 February 2012 05:47

It is essential that employers properly classify employees, as the potential liabilities and penalties are significant. This is particularly important in light of the Department of Labor’s recent memorandum of understanding with the State of California, which is intended to “end the misclassification” of  employees as independent contractors.

The state agencies most involved with the determination of independent contractor status are the Employment Development Department (EDD), which deals with employment-related taxes, and the Division of Labor Standards Enforcement (DLSE), which enforces wage and hour laws. There are other agencies, such as the Franchise Tax Board (FTB), Division of Workers’ Compensation (DWC), and the Contractors State Licensing Board (CSLB), that also have requirements concerning independent contractors. Significantly, since different laws may be involved with a particular workplace situation such as a termination of employment, it is possible that the same individual could be considered an employee under one law and an independent contractor under another law.

Although there is no set definition of the term “independent contractor” it is important to note that the DLSE begins with the presumption that the worker is an employee. Labor Code Section 3357.  This is a rebuttable presumption, however, and the determination of whether a worker is an employee or independent contractor depends upon a number of factors, all of which must be taken into account. Therefore, it is necessary to analyze the facts of each service relationship. For most matters before the DLSE, this means applying the "multi-factor" or the "economic realities" test adopted by the California Supreme Court in the case of S. G. Borello & Sons, Inc. v Dept. of Industrial Relations (1989) 48 Cal.3d 341. In applying the economic realities test, the most important factor is whether the person to whom service is rendered (the employer or principal) controls the worker both as to the work done and the manner and means in which it is performed. Additional factors that may be considered depending on the issue involved are:

1. Whether the person performing services is engaged in an occupation or business distinct from that of the alleged employer;

2. Whether or not the work is a part of the regular business of the principal or alleged employer;

3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;

4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;

5. Whether the service rendered requires a special skill;

6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;

7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;

8. The length of time for which the services are to be performed;

9. The degree of permanence of the working relationship;

10. The method of payment, whether by time or by the job; and

11. Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

Even in situations where there is an absence of control over work details, an employer-employee relationship will be found if (1) the principal retains pervasive control over the operation as a whole, (2) the worker’s duties are an integral part of the operation, and (3) the nature of the work makes detailed control unnecessary (Yellow Cab Cooperative v. Workers Compensation Appeals Board (1991) 226 Cal.App.3d 1288).

It is important to note that the existence of a written agreement purporting to establish an independent contractor relationship is not determinative of independent contractor status (Borello, Id.at 349), and the fact that a worker is issued a 1099 form rather than a W-2 form is also not determinative with respect to independent contractor status (Toyota Motor Sales v. Superior Court (1990) 220 Cal.App.3d 864, 877). Read More.

Labor Commission Issues Updated FAQs on Wage Theft Prevention Act

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Published on Thursday, 26 January 2012 20:06

On January 23, 2012, the California Labor Commissioner released an updated and expanded version of the previously issued “frequently asked questions” (FAQ) related to the new Wage Theft Protection Act (AB 469). The Wage Theft Prevention Act went into effect on January 1, 2012. The new legislation amends existing laws, and adds new requirements which “criminalizes willful violations for non-payment of wages after a court judgment or final administrative order; requires restitution to the employee in addition to a civil penalty for failure to pay minimum wages; requires that specified information be provided to employees at the time of hire and in wage claim proceedings and that employers update changes within specified periods; extends the time period for obtaining judgments on final orders for collection of penalties by the Division of Labor Standards Enforcement (DLSE); enhances bond requirements for employers with convictions or court judgments for non-payment of wages including requiring an accounting of assets upon request by DLSE or court order; establishes that penalties under the Labor Code for failure to comply with wage-related statutes are minimum penalties; and allows employees to recover attorney’s fees and costs incurred to enforce a judgment for unpaid wages.” 

The new legislation also requires that employers provide notice to employees of  their rate(s) of pay, designated pay day, the employer’s intent to claim allowances (meal or lodging allowances) as part of the minimum wage, and the basis of wage payment (whether paying by hour, shift, day, week, piece, etc.), including any applicable rates for overtime. The new law also requires that the notice contain the employer's "doing business as" names, and that it be provided when the employee is hired and within 7 days of a change, provided the change is not listed on the employee’s pay stub for the following pay period. The notice must be provided in the language the employer typically uses to communicate workplace information to the employee. The Labor Commission has provided translated notices. The Commissioner is also recommending that all non-exempt existing employees be provided with the same information although the new legislation only pertains to new hires. A template has been provided by the Commissioner which can be found at: http://www.dir.ca.gov/dlse/Governor_signs_Wage_Theft_Protection_Act_of_2011.html. Read More.

Labor Commissioner Issues Template For AB 469 Notice

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Published on Saturday, 31 December 2011 21:27

Governor Brown signed into law AB 469 known as the Wage Theft Protection Act of 2011. The provisions of the Act become effective January 1, 2012.  Labor Code section 2810.5 was added by the bill which requires that all employers must provide each employee at the time of hire with a written notice that contains certain information. The Notice must be provided in the language the employer normally uses to communicate employment-related information to the employee. The Act required that the Labor Commissioner make available for employers a template that complies with the requirements of the Notice. The template is now available at www.dlse.ca.gov. Employers should also realize that Labor Code section 2810.5(b) requires that employers notify employees in writing of any changes to the information set forth in the Notice within seven calendar days after the time of the changes, unless one of the following applies: (a) All changes are reflected on a timely wage statement furnished in accordance with Labor Code section 226; (b) Notice of all changes is provided in another writing require by law within seven days of the changes. The Notice is NOT required if (a) the employee is directly employed by the state or any political subdivision thereof; (b) the employee is exempt from the payment of overtime wages by statute or wage order; or (c) the employee is covered by a collective bargaining agreement that expressly provides for wages, hours of work and working conditions, and provides for premium wage rates for all overtime worked. Read More.

DLSE Forms “Compliance Monitoring Unit”

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Published on Thursday, 15 December 2011 20:03

The Compliance Monitoring Unit or “CMU” is a new unit within the Division of Labor Standards Enforcement (DLSE) intended to monitor and enforce prevailing wage requirements on public works projects receiving state bond funding and on other projects that are required to use the CMU.  The CMU will begin operations on January 1, 2012, following the recent adoption of AB 436 and approval of revisions to program regulations. According to the DLSE, “by actively monitoring compliance on an ongoing basis while work is being performed, the CMU will play a special role in ensuring that public works construction workers are promptly paid the proper prevailing wage rates and in helping maintain a level playing field for contractors who comply with the law.” Only projects for which the public works contract has been awarded on or after January 1, 2012 will be subject to the CMU requirements. Contracts awarded prior to January 1, 2012 will be subject to the prior monitoring and enforcement rules for the duration of those projects. Read More.