The following information has been taken from the EDD CA.GOV website and is primarily for California residents. Although the rules might be quite similar or even identical, we have to ask you to use this as a guideline for CA only and not the rest of the states.
If you can’t find the .gov webpage that contains information relevant to your state feel free to give us a call and we’ll help you find it.
What is the difference between a common law employee and an independent contractor?
“Common law,” as we know it, has evolved slowly over the centuries based upon judgments rendered by the courts on individual cases. The common law of employment, as it exists today, is the total of all court decisions related to the question of what constitutes an employment relationship.
An employer-employee relationship exists when a person who hires an individual to perform services has the right to exercise control over the manner and means by which the individual performs his or her services. The right of control, whether or not exercised, is the most important factor in determining the relationship. The right to discharge a worker at will and without cause is strong evidence of the right of direction and control. The following factors should also be taken into consideration:
- Whether or not the one performing the services is engaged in a separately established occupation or business.
- The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of a principal without supervision.
- The skill required in performing the services and accomplishing the desired result.
- Whether the principal or the person providing the services supplies the tools, equipment, and place of work for the person doing the work.
- The length of time for which the services are performed to determine whether the performance is an isolated event or continuous in nature.
- The method of payment, whether by time, a piece rate, or by the job.
- Whether or not the work is part of the regular business of the principal.
- Whether or not the parties believe they are creating the relationship of employer and employee.
- The extent of actual control exercised by the principal over the manner and means of performing the services.
- Whether the principal is or is not engaged in a business enterprise or whether the services being performed are for the benefit or convenience of the principal as an individual.
- Whether the worker can make business decisions that would enable him or her to earn a profit or incur a financial loss. Investment of the worker’s time is not sufficient to show a risk of loss.
A written contract which claims to create the relationship of principal and independent contractor is not controlling if the practice of the parties shows that the principal retains the right of control under the common law test.
The modern tendency is to find employment when the work being done is an integral part of the regular business of the employer and the worker does not furnish an independent business or professional service relative to the employer.
If you are unsure as to whether your workers are employees or independent contractors, refer to the Information Sheet: Employment Work Status Determination (DE 231ES) or call our toll-free number 1-888-745-3886. You may also refer to Independent Contractors Misconceptions (DE 573M-English or DE 573M/S-Spanish).
The California factors and the federal factors to determine whether a worker is an employee or an independent contractor differ in some cases. See IRS Tax Topic 762 – Independent Contractor vs. Employee.
Attend a Seminar: We offer no-fee seminars to assist employers in complying with California’s payroll tax laws. Visit the Payroll Tax Seminars page to find available classroom seminars or online courses.
For more information, call our toll-free number 1-888-745-3886 or visit your local Employment Tax Office.