The Difference Between Independent Contractors and Employees

Companies try to reduce overhead by hiring independent contractors instead of employees. We get a lot of calls from people who want to know what the difference is between these two labels and how impacts them.

First, the independent contractor label is usually good for the company and bad for the person. The company saves money because Independent contractors are not entitled to receive any benefits such as health insurance or overtime pay. This is a huge savings for companies.

I write this post so people who are working as independent contractors can tell if they are being illegally deprived of benefits and legal protection.  The key factor is whether the employer has control or the right to control the worker both as to the work done and the manner and means in which it is performed. Courts typically consider these factors in determining whether a worker is an employee or independent contractor:

1. Whether the worker is engaged in an occupation or business distinct from that of the employer;
2. Whether or not the work is a part of the regular business of the employer;
3. Whether the employer or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
4. The alleged worker's investment in the equipment or materials required by his or her task or his or her employment of helpers;
5. Whether the service rendered requires a special skill;
6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
7. The worker's opportunity for profit or loss depending on his or her managerial skill;
8. The length of time for which the services are to be performed;
9. The degree of permanence of the working relationship;
10. The method of payment, whether by time or by the job; and
11. Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

Even where there is an absence of control over work details, an employer-employee relationship will be found if (1) the employer retains pervasive control over the operation as a whole, (2) the worker's duties are an integral part of the operation, and (3) the nature of the work makes detailed control unnecessary. (Yellow Cab Cooperative v. Workers Compensation Appeals Board (1991) 226 Cal.App.3d 1288)

Other points to remember in determining whether a worker is an employee or independent contractor are that the existence of a written agreement purporting to establish an independent contractor relationship is not determinative (Borello, Id.at 349), and the fact that a worker is issued a 1099 form rather than a W-2 form is also not determinative with respect to independent contractor status. (Toyota Motor Sales v. Superior Court (1990) 220 Cal.App.3d 864, 877).