The Difference Between an Employee and an Independent Contractor Under California Employment Laws

Given the growth of the “gig economy” in recent years, a growing number of companies are relying less on employees and more on independent contractors. While hiring independent contractors affords companies and individuals greater flexibility, it also opens the door to potential abuses by employers.

Employees Versus Independent Contractors

Historically, most companies hired employees to perform all the necessary tasks related to the business. However, hiring an employee is expensive for a company because it must pay payroll taxes and often feels competitive pressure to provide employees with certain benefits, such as health and dental insurance. Moreover, employees are entitled to receive a minimum wage, and certain employees must be paid overtime wages. Employees are also covered by workers’ compensation insurance.

Independent contractors, on the other hand, are much less expensive for businesses to use. For example, a business can use independent contractors only when needed without worrying about paying for their benefits. While the use of independent contractors used to only be common in certain industries, that’s changed in recent years.

It is important for employees to understand that, while there are certain appeals to the independent contractor lifestyle, employers have been known to take advantage of workers by labeling them as independent contractors to avoid the additional expenses that come along with hiring employees.

California Law Pertaining to Independent Contractors

California is home to several very large and popular companies, which have largely caused the surge in independent contractors: Uber and Lyft. Thus, California is on the cutting edge when it comes to the distinction between employees and independent contractors. For example, in 2019, Governor Newsom signed Assembly Bill 5, or AB5, into law. AB5 was an effort to clarify the legal standard by which courts review an employer’s characterization of a worker as an independent contractor. More specifically, AB5 required the use of the “ABC test,” which considers,

  • Is the worker free from the control and direction of the employer in terms of how they complete their assigned work?
  • Does the worker perform tasks that are outside the usual course of the employer’s business?
  • Does the worker “customarily engage in an independent trade?”

Unless the answer to all three questions is “yes”, they are to be considered an “employee” for the purposes of California employment law. This means a person would be entitled to all the rights and benefits of an employee.

Are You Involved in a California Employment Dispute?

If you believe that the company you are working for has unfairly characterized you as an independent contractor rather than an employee, the company may be in violation of California employment laws. At The Nourmand Law Firm, APC, we proudly represent workers and employers across all industries in a wide range of employment litigation. We routinely handle violations of the Fair Labor Standards Act, employment discrimination cases, and more. To learn more about the services we provide, and to schedule a free consultation, give us a call at 800-700-WAGE (9243). You can also reach us through our online contact form.

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