Independent contractor vs employee (CA Law)

A big part of running a business is working with independent contractors. These are self employed professionals you hire to support a specific aspect of your business. These are different than working with employees because they usually bring in their expertise to solve a specific business problem you’re dealing with. However, in September of 2019, Governor Newsom signed Assembly Bill (AB) 5 into law. The new law addresses the “employment status” of workers when the hiring entity claims the worker is an independent contractor and not an employee.

In a nutshell, this law was enacted to protect employees from being hired as an independent contractor. Independent contractors aren’t afforded the same rights as employees, are subject to report all their income taxes, and employers don’t need to pay payroll tax nor have workers comp insurance for them. But there are a lot of instances where a legitimate independent contractor relationship can be impacted by this law. Massage Spa’s could pentially be impacted by this law. The business model of some Spa’s include renting rooms to other operators who could be considered independent contractors. If you are not sure whether an independent contractor could be considered an employee then contact your local HR legal professional. But do keep these points in mind:

A worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:

  • 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;
  • The worker performs work that is outside the usual course of the hiring entity’s business; and
  • The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Don’t get caught red handed when it comes to Employees vs Independent Contractors. Consult with your HR professional to be sure you’re properly planning your labor force. If you don’t have a professional to consult with, please contact us today so we can refer you to a network of trusted competent professionals!

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