Compliance: Making sense of the myriad tests for independent contractor v. employment status

The question of whether a worker is an employee or an independent contractor can have very important consequences, as the two categories receive very different treatment under the law.

To name only a few differences, there are no federal or state income tax withholding obligations for independent contractors; wage and hour laws do not apply to independent contractors; most anti-discrimination laws do not apply to independent contractors. And, of course, the employer mandate under the Affordable Care Act does not apply in the case of independent contractors. There is a lot riding on the question.

It can sometimes be difficult to predict whether a worker will be deemed an employee or an independent contractor, but there are multiple tests depending upon which area of law is implicated.

For example, where a worker is claiming to be an employee and is seeking remedies under California law (for example, state wage and hour or state discrimination claims), the primary test of employment relationship is whether the principal has the right to control not just the means, but also the manner in which the results are achieved. Added to this are a series of “secondary factors,” such as whether the worker is engaged in a distinct occupation, whether the worker supplies the tools and instrumentalities for the job, the method of payment, whether the worker has a substantial investment in the business, whether the worker hires employees to assist him, whether the parties believe they are creating an employer-employee relationship, and the degree of permanence of the relationship.