Independent Contractors vs. Employees: Navigating the Misclassification Issue

by | Nov 6, 2023 | General Issues, Wage & Hour

Employer and worker discussing contract misclassification


Oftentimes businesses will attempt to hire workers as independent contractors rather than as employees. While some workers enjoy the flexibility and autonomy of independent contractor work, such workers can miss out on important benefits and protections afforded to employees. Some businesses misclassify their workers as independent contractors when, in fact, they should legally be employees. In some cases, this misclassification may be unintentional, but in others, it may be a means to purposely deprive workers of critical benefits and labor standards protections.

It is important to note that workers in California may be considered employees even if they do not meet the federal Fair Labor Standards Act (FLSA), because of the differing tests and standards upheld in California.

    Understanding the Distinction Between Independent Contractors and Employees

    Under California’s version of the ABC test, 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.

    While the ABC test covers most misclassification cases in California, certain work relationships require an analysis under the Borello test, established in S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 34. This test takes a multifactor approach to cases, where no single element of the case determines the outcome, but rather considers all applicable facts.  Under the Borello standards, the main consideration is the employer’s level of control over the worker.

    While the ABC test was created to make things simpler for employers and workers to determine classification, the Borello test is used where the ABC test would not apply to certain occupations. For an extensive explanation on the different tests, visit the California Department of Industrial Relations page

      Seek Legal Representation

      Workers subject to misclassification should seek help from a qualified attorney who knows the laws applicable to their situation. Legal counsel can help you understand your rights, available options, and advise you on gathering the necessary documents and witnesses to support your claim.

      Since 2001, the attorneys from Rothschild & Alwill, APC have dedicated themselves to misclassified workers. Our experienced labor and employment lawyers can advise you on any potential legal claims. You deserve sound judgment, hard work, skilled representation, and to be treated with dignity during every step of the process.

      Email us or call or office in our Central Valley office in Bakersfield at (661-369-8510) or in Santa Barbara at (805-845-1190) to schedule an initial confidential consultation at no charge. Se habla Español.


      Benefits and Obligations

      Understanding the distinction between independent contractors and employees is important because employers’ responsibilities toward each group differ. The list below explains some key differences:

      Wages & Compensation/Payment for Services: Employers must provide employees with a regular salary or hourly wage per applicable federal, state, and local laws. In contrast, businesses must compensate independent contractors based on the terms outlined in the applicable contract/agreement. Occasionally, employees may also have a written employment agreement (and unionized employees will have a collective bargaining agreement), but those agreements are still subject to the legal obligations employers have toward employees. An employment contract does not control whether a worker is properly classified as an employee or independent contractor.


      Taxes & Benefits: Employers must withhold and remit income taxes, Social Security, and Medicare taxes from their employees’ paychecks. Depending on applicable state and local laws, an employment contract, or a collective bargaining agreement, employers may also be required to provide benefits such as health insurance, retirement plans, and paid time off. However, independent contractors are typically responsible for their own tax payments and are not legally entitled to benefits.


      Work Hours & Overtime: Organizations must follow applicable federal, state, and local laws governing employees’ work hours, rest and meal breaks, overtime pay, and family and medical leave as to employees. These laws generally do not cover independent contractors.


      Workplace Rights & Safety: As to employees, employers are required to adhere to applicable workplace health and safety laws and workers’ compensation for employees injured on the job. Employers must also follow applicable workplace rights laws such as protections from discrimination based on protected characteristics and retaliation for engaging in protected activities. These laws generally do not cover independent contractors.


      Understanding the differences between employee and independent contractor is vital for both workers and employers. Misclassification can result in fines and penalties for employers and workers go without benefits and protections.

      Know your rights by scheduling a consultation with the experienced employment attorneys at Rothschild & Alwill, APC. They can advise you on a potential misclassification claim. Email us or call or office in our Central Valley office in Bakersfield at (661-369-8510) or in Santa Barbara at (805-845-1190) to schedule an initial confidential consultation at no charge. Se habla Español.



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