Independent Contractor vs Employee Compared

Brad Nakase, Attorney


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Overview. It is very important for both an employer and worker to know what classification his or her employment fits: employee or independent contractor. Certain benefits are given to employees that are not given to independent contractors and vice versa. Moreover, an employer can suffer consequences financially and even criminally if he or she does not take the requisite steps in categorizing their workers correctly. Many factors come into play when analyzing the relationship but the most important is to look at the amount of control and who asserts it.


Independent Contractors Versus Employees

Workers have certain rights depending on their classification. In California, there are usually two types of categories to define workers: independent contractors and employees.


Independent contractors, also known as 1099s or freelancers, is defined under California law.[1] These people usually take on projects and are free to work on multiple tasks at once. They usually work for themselves and are hired by someone to finish an assignment. An example of an independent contractor can be when hiring someone to paint your house.


An employee, on the other hand, is someone hired by a business and responds to a boss.[2] There is an employer-employee relationship and the employee finish specific tasks set out by his or her employer, is paid by that employer, and receives benefits from that employer.[3]


Classification of these two types of workers is important because it sets forth what types of benefits are allotted, the rights each possesses, and the protections afforded. For instance, employees have a right to meal breaks and minimum wage where independent contractors do not.[4] But how can you tell which category you belong?


Employee versus independent contractor tests

There are several tests one can use in order to determine whether a worker is an independent contractor or an employee. However, they all include an important factor: control.[5] If there is the right to interfere and more control exists, then it is likely an employer-employee relationship.[6]


The manner and means test

An employee-employer relationship arises when the employee works for the benefit of the employer.[7] In order to determine whether there is an employee-employer relationship, the manner and means test is used in California. As stated above, the most important element to analyze is control. If the employer has more control, then there is likely an employee-employer relationship. If there is less control, then the worker is likely an independent contractor. For example, if the employer has the right to state how the task should be completed, then there is likely an employee-employer relationship. Further, there is no need for a contractual employment agreement to be in place when deciding whether one is an employee or independent contractor; it can be implied.[8]


Other factors courts look at when determining whether someone is an employee or independent contractor include:

  • Opportunity for profit or loss
    • Higher opportunity for profit/loss, independent contractor
  • Workers investment in own equipment or materials
    • Spend more money on own equipment, likely independent contractor
  • Specialized skills
    • More specialized the skills the more the worker looks like independent contractor and not an employee
  • Degree of permanence in the relationship


Further, licensed contractors with certifications issued by the State of California are considered employees for this purpose.


Federal Court test – Economic Realities

If a complaint is brought in federal court, the economic realities test is usually applied instead of the manner and means test specific to California. Here, a court considers factors including: whether employer had authority to hire and fire; whether employer supervised and controlled work schedules and condition of worker’s employment, and whether employer determined payment.[9] These are just a few of the factors the courts look at and is not an exhaustive list.


Who has more protection?

An employee is afforded more protections and benefits under California law than an independent contractor. These include: right to meal breaks, overtime; minimum wage; workplace safety laws; worker’s compensation; family and medical leave; social security payments by the employer; and protection for unlawful discrimination, just to name a few.


Who has more freedom?

Although independent contractors have less protection, they do have more freedom because they do not have someone interfering and controlling their every decision. Unlike employees, they can: set their own pay; set their own hours; accept their own projects; work as often or as little; take vacations without asking permission or using time off; and decide how to complete their work, just to name a few.


Anti-Discrimination laws

California has created the Fair Employment and Housing Act (FEHA) to protect employees from workplace discrimination. This regulation covers sex, race, religion, gender, sexual orientation, age, disability, etc. However, this statute only covers people that are:

  • Employees
  • Applicants
  • Temps
  • Unpaid interns[10]


As you can see, independent contractors are not part of this list and therefore, are usually not protected under FEHA like employees.


Misclassification Penalties

Everyone makes mistakes here and there but if an employer purposefully misclassifies an employee, he or she can be subject to fines including $15,000/per violation. If a pattern ensues of bad behavior, this number can nearly double.[11] Workers are also usually giving back payments if found. If you feel you have been miscategorized, try to solve the problem internally first. If that doesn’t work, it may also be a great option to speak with an attorney about your specific case. You may also file claims with the IRS in order to have your pay stubs reviewed. These are just a few of the available options.






Legal Reference

[1]Labor Code § 3353

[2] Labor Code § 3351

[3] Cal. Code Regs., tit. 8, § 11150, subd. (2)(G)

[4] Labor Code, § 1182.12, subds. (b).

[5] Johnson v. Dep’t of Indus. Relations, Div. of Indus. Acci. & Safety, 101 Cal. App 1, 281 P. 440 (Dist. Ct. App. 1929).

[6] Varisco v. Gateway Science & Engineering, Inc., (2008) 166 Cal. App. 4th 1099, 1100

[7] Labor Code § 2750

[8] Burlingham v. Gray (1943) 22 Cal. 2d 87, 100.

[9] Futrell v. Payday Cal., 190 Cal. App. 4th 1419, 119 Cal. Rptr. 3d 513 (2010)

[10] Gov. Code § 12940

[11] Labor Code § 226.8

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Legal Reference

[1] Labor Code § 3353

[2] Labor Code § 3351

[3] Cal. Code Regs., tit. 8, § 11150, subd. (2)(G)

[4] Labor Code, § 1182.12, subds. (b).

[5] Johnson v. Dep’t of Indus. Relations, Div. of Indus. Acci. & Safety, 101 Cal. App 1, 281 P. 440 (Dist. Ct. App. 1929).

[6] Varisco v. Gateway Science & Engineering, Inc., (2008) 166 Cal. App. 4th 1099, 1100

[7] Labor Code § 2750

[8] Burlingham v. Gray (1943) 22 Cal. 2d 87, 100.

[9] Futrell v. Payday Cal., 190 Cal. App. 4th 1419, 119 Cal. Rptr. 3d 513 (2010)

[10] Gov. Code § 12940

[11] Labor Code § 226.8