Employee vs. Independent Contractor

The biggest question to ask yourself once you’re ready to start expanding your team is whether to hire employees or to hire independent contractors. We know, the employee vs. independent contractor conundrum! This article will help you understand the difference between the two. Read on for more.

The Key Differences

In the broadest terms, employees tend to be more work because the law wants to protect employees by instituting a bunch of regulations, such as minimum wage and required leave. More on hiring employees here.

On the other hand, entering into an independent contractor agreement can be quite beneficial. Hiring an independent contractor means fewer burdens and formalities than hiring an employee. Independent contractors typically use their own equipment and are independently certified or qualified to perform the services, which means less training obligations for the company. An independent contractor also retains the right work for whomever they want.

The Independent Contractor Test (Update!)

Despite the advantages of hiring an independent contractor, there is still some risk involved. If a court determines that your organization has treated the worker as an employee rather than an independent contractor, your organization will be required to pay the worker. These can payments include:

  • Additional benefits.
  • Workers compensation.
  • Taxes.
  • Overtime pay for the worker.  

So how does one stay on the right side of the independent contractor rule? We’re glad you asked! In California, the law recently changed from the former test to the new ABC Test. The following ABC Test outlines factors relevant to determine whether a person qualifies as an employee or an independent contractor:

  1. The worker must be free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; AND
  2. The worker should perform work that is outside the usual course of the hiring entity’s business; AND
  3. The worker should be customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

Since California so recently adopted the ABC Test, the effect of the test remains somewhat unclear. Therefore, California employers are encouraged to reevaluate their independent contractor relationships. Feel free to reach out for further guidance.

What’s Right For You?

After reading through the factors above, you probably have a better idea of what type of relationship is right for your organization. If you’re unsure whether or not you can meet the test, reach out to your lawyer peeps!    

By:  Zachary Avina  – 06/08/18

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