Are You an Employee or Independent Contractor under California law?

One of the most common mistakes made by employers is misclassifying employees as independent contractors. While some employers misclassify workers because they don't understand the law, other employers intentionally do so to avoid their legal obligations to employees.

If you've been misclassified, you're probably missing out on several rights and benefits that you're entitled to as an employee. In fact, you may have a potentially large wage claim if you regularly work more than eight hours in a day or 40 hours in a week, but you aren't paid at the proper overtime rate because your employer has labeled you as an independent contractor.

What Rights Are Employees Entitled To?

Employees are entitled to a wide variety of protections under federal and state law. Among other things, the following rules apply to employees, but not to independent contractors:

• employers must withhold state and federal payroll taxes for their employees
• employers must provide workers' compensation insurance for their employees
• employees are eligible for unemployment insurance benefits from the state
• employees are entitled to wage and hour protections, including minimum wage and overtime, and
• employees are protected under federal and state antidiscrimination laws.

What Is an Independent Contractor?

In general, an independent contractor is someone who is in business for himself or herself. Independent contractors usually perform work that requires a specialized skill or trade that is not part of a company's regular business. They also typically perform work for multiple customers or clients, set their own fees, work from home or their own place of business, provide their own tools and equipment, and determine how and when the work is to be done.

A customer or client may provide specifications or deadlines for the work, but the independent contractor decides how much time to spend and how best to do the job. For example, a web designer who works from home, performs services for multiple clients, sets his or her own hours, and gets paid on a project basis would probably be classified as an independent contractor.

An employee, on the other hand, is someone whom a company has much more control over. An employee typically performs work that is a regular part of a company's business. Employees also usually have regularly scheduled hours, work at the employer's place of business, receive training and direction from the company, receive an hourly wage or salary, and are subject to discipline by the company.

The company has control over how the employee performs the work, often providing training, guidelines, or other supervision over the work product. For example, a marketing assistant who works from 9:00 p.m. to 5:00 p.m. during the week, at the company's offices, receives $15 per hour, and has a supervisor who reviews his or her work, would probably be classified as an employee.

Assembly Bill 5 and the ABC Test

Under Assembly Bill 5 (AB 5), effective January 1, 2020, the strict "ABC test" must be used to determine if a worker is an employee or IC for most California employment law purposes, including wage and hour laws, unemployment benefits, and workers' compensation coverage.

Under the ABC test, a worker is an IC only if he or she meets all of the following:

• (A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
• (B) The worker performs work that is outside the usual course of the hiring entity's business.
• (C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Notably, the ABC test is not used to classify certain gig workers due to the passage of Prop 22 (discussed above). AB 5 also contains a multitude of exceptions, including for physicians, lawyers, accountants, insurance brokers, and many others.

For more information on AB 5, check out these FAQs issued by the California Labor & Workforce Development Agency.

What Can I Do If I've Been Misclassified?

If you believe you have been improperly classified as an independent contractor, you may have a wage and hour claim against your employer. For example, if you work more than eight hours in a day or 40 hours in a week, you may be owed unpaid overtime and penalties for missed meal periods and rest breaks. For more information on how to pursue a wage and hour claim, see our article, What is My Wage or Overtime Claim Worth in California?