What is California’s Law on Independent Contractors?

September 21, 2023

In the ever-evolving landscape of employment regulations, the California standard for determining what workers qualify as independent contractors stands out as a crucial topic that impacts both businesses and workers. If you are navigating through the complexities of this law, you're in the right place. California law heavily favors that workers be classified as employees - in only very limited circumstances should workers be classified as independent contractors.

To assist readers in gaining knowledge of the legislation, we have broken down its key provisions, discussed its implications, and outlined the measures businesses must take to stay compliant.

California's Independent Contractor Law 101

California’s law is designed to provide a framework for classifying workers as employees or independent contractors within California, which has significant implications for workers. Remember, California law heavily favors workers being classified as employees.

The categorization plays a crucial role in establishing whether you qualify for employee advantages. Its purpose is to avoid incorrect labeling, making certain that workers aren't treated unfairly.

Understanding the ABC Test

For legal and tax purposes, the distinction between an employee and an independent contractor is made in accordance with the ABC Test. To help you better grasp each part, we've broken it down into its component parts:

A. Independence

The worker must be able to complete tasks without constant oversight from the hiring entity. They should be able to approach their work in the manner they prefer, free from detailed supervision by the employer.

B. Outside the Usual Business

The job performed by the worker should not be a key aspect of the hiring entity's primary operations. For example, if a bakery hires a plumber, fixing pipes is not a core activity of baking bread and pastries.

C. Independent Business

A worker in this context must have experience in a completely different field of work than their current one. It could be in the form of offering the same services to different clients or even having an officially established business.

All three factors must be satisfied for the worker to be legitimately considered an independent contractor. It is crucial for both workers and employers to understand and carefully consider these criteria when entering into a work arrangement.

an image of  some organized company documents

Key Differences Between Employees and Independent Contractors

Aspect

Employees

Independent Contractors

Company Policies

Must follow company rules and procedures

Operate with personal freedom

Benefit Eligibility

Access to various benefits like healthcare

Responsible for personal benefits

Overtime Pay

Qualify for overtime pay beyond standard hours

No entitlement to overtime pay

Flexibility

Subject to company schedule

Control over working hours and rates

Tax Responsibilities

Company withholds taxes

Responsible for personal taxes

Job Security

Protection against unjust termination

Lack of job security or termination safeguards

Implications

Legal obligations, tax duties, benefit access

Both parties must grasp differences for compliance

Exemptions under California Independent Contractor Law

Effective January 1, 2020, the State of California passed AB5, which codified the ABC Test as the law of California in determining whether a person is an employee or an independent contractor.

Under AB5, there were certain professions that are exempt from the ABC Test analysis. The exemptions cover a range of occupations and sectors, including but not limited to:

Professional Services: Certain licensed professionals, such as lawyers, doctors, and architects. However, para-professionals, like nurses, paralegals, and some therapists are not exempt.

Business-to-Business Contracts: Contracts between businesses where one is providing services to the other are often exempt from the law's requirements.

Construction Industry: Workers in certain construction-related roles may be exempt if they meet specific criteria outlined in the law.

Real Estate: Agents and brokers in the real estate industry may qualify for an exemption under specific circumstances.

Certain Freelance Roles: Writers, photographers, graphic designers, and more may be exempt if they match the requirements.

Referral Agencies: There are exceptions for service providers who act as intermediaries between customers and service providers.

Licensed Motor Carriers: In the transportation business, exemptions may apply to particular motor carriers and owner-operators.

Certain Professional Services Contracts: Some contracts for professional services are exempt if certain criteria are met.

Direct Sales: Those in direct sales who fulfill the appropriate qualifications are exempt.

Licensed Cosmetologists and Barbers: These experts are exempted from the rule under limitations.

Payment Processing Entities: An exception could be made for some types of third-party payment processors.

It's crucial for both employers and workers to understand these exceptions to California's independent contractor law. Being aware of these special cases can help you navigate the complexities of employment classifications and ensure compliance with the law.

a woman writing in a notebook

Understanding Your Classification

Understanding the rules governing independent contractors in California is essential for individuals. Therefore, it is important to understand both your obligations and rights to make sure you are classified correctly and receiving all of the benefits you are entitled to.

Misclassification

Misclassification of workers as independent contractors when they should be employees can result in confusion and various issues.

If you suspect you might be misclassified as an independent contractor, seek legal guidance.

Things to Which You Could Be Entitled to If You Are Misclassified as an Independent Contractor:

  • Overwage
  • Benefits (PTO, Insurance, etc)
  • Meal Periods
  • Rest Breaks
  • Other Wages/Bonuses

Mastering California’s Independent Contractor Law - Start Here!

California’s legal standard in properly classifying workers as independent contractors vs. employees has brought changes that demand attention. Hence, let Freeburg & Granieri, APC be your guiding light! Our team's deep understanding of the law equips you with the knowledge you need to make informed choices.

Don't wait until it's too late! Book your FREE consultation today if you think you are misclassified as an independent contractor.

Conclusion

As we wrap up our exploration of the California’s independent contractor law, remember that it's a significant aspect of the business landscape in the state, and familiarity with this law is a must to avoid legal troubles and make informed decisions.

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