In the context of employment, worker classification in California is the process of categorizing a worker as an employee of a business or as an independent contractor. This classification will determine the worker’s tax obligations, legal status, and how much control their employer has over their work.
In the State of California, classification of workers is governed by criteria set forth by the California Supreme Court in the case Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903, referred to as the Dynamex decision. Under this decision, workers are presumed to be employees unless an employer can show the worker meets all of the three prongs of the ABC test, which will be discussed below.
The classification a worker receives can significantly impact their pay, benefits, and what their employer must do to comply with applicable labor laws. The way a worker is classified can also affect:
- Whether they are entitled to minimum wage
- Overtime pay
- Unemployment benefits
- The types of legal protections they receive
There are also tax implications based on worker classification. Employees have their taxes withheld from their paychecks by employers. Independent contractors or freelancers have to pay their own self-employment taxes.
That classification of a worker may be based on several different factors, including, but not limited to:
- The level of control the employer has over the worker’s work
- The ability of the worker to set their own schedule
- Whether or not the worker uses their own equipment or tools
- The nature of the work that the worker performs
The criteria for classifying workers in California are not always clear and leave room for interpretation. Because of this, it is important to schedule a legal consultation in California with an employment attorney for advice.
Workers may be misclassified on accident by their employer due to a lack of understanding of the laws that apply. In other situations, an employer may purposefully misclassify a worker to avoid providing them with workers’ compensation, paying taxes, or providing them with other benefits employees receive.
What Laws Govern Worker Classification?
There are several laws that govern worker classification, both federal and state, in California. Under the federal Fair Labor Standards Act (FLSA), the United States Department of Labor has attempted to clarify worker classification.
However, the nature of the gig economy can create unique challenges for both gig workers and their employers. The State of California has attempted to address some of these issues under California employment law Assembly Bill 5 (AB 5).
AB 5 became effective on January 1, 2020. This law impacts whether a worker in California is treated as an independent contractor or as an employee.
AB 5 requires employers to apply the ABC test in order to determine if a California worker is an employee or an independent contractor for the purposes of:
- The Labor Code
- The Unemployment Insurance Code
- The Industrial Welfare Commission (IWC) wage orders
Under the ABC test, workers are considered employees and not independent contractors unless the employer can satisfy all three of the following:
- The worker is free from the direction and control of the employer with regard to the performance of their work, under both the contract for work performance and the work in fact
- The worker engages in work that is outside the typical course of the employer’s business
- The worker is engaged in an independently established business, trade, or occupation of the same nature that is involved in the work performed
A qualified attorney can help an employee determine their status under the ABC test, and prepare the necessary documentation for proof.
Who Is Exempt from California AB5?
In some situations, different categories of employees may be exempt from California AB5 requirements. For more information on the specific requirements of each portion of the ABC test, it is important to reach out to a local attorney in California.
It is very important to note that there are specific situations in which the ABC test will not apply, including:
- When the Industrial Welfare Commission or the California Legislature has defined an employment relationship in a specific way. In these cases, the specific language in the Labor Code, IWC wage order, or Unemployment Insurance Code will apply
- If a court determines that the ABC test cannot apply, such as when it is preempted by a federal law, the Borello test will be used
- The ABC test may not apply to certain contracting relationships and occupations
- According to California Labor Code section 2775-2787, the Borello test will apply to:
- certain licensed:
- insurance agents
- insurance brokers
- physicians
- dentists
- surgeons
- podiatrists
- veterinarians
- psychologists
- attorneys
- engineers
- private investigators
- architects
- accountants
- commercial fisherman through December 31, 2025
- certain direct salespersons
- certain registered
- securities broker dealers
- investment advisers
- agents or representatives of these individuals
- certain newspaper carriers or distributors through December 31, 2024
The ABC test exemptions for certain occupations, industries, or contracting relationships can involve complex rules and requirements not discussed above. Additionally, there may be other exemptions that apply. For specific advice on exempt vs non exempt employees, it is important to consult with an attorney.
How Does Worker Classification Affect a Worker?
Worker classification can have a major impact on a worker, especially when they are incorrectly classified by an employer. For example, an employer may incorrectly classify an employee as an independent contractor, which may cause them to miss out on pay or benefits they would be entitled to as an employee.
In addition, the worker may not be provided the legal rights and protections they are entitled to if they are not correctly classified. A worker who is not properly classified may also have limited access to job security and career advancement opportunities.
Based on the evolution of California laws governing worker classification and scope of employment, a worker may be able to file a lawsuit to seek back wages, benefits, and compensation for the time they were not properly classified. It is important to contact a lawyer if you have any questions about unfair labor practices in California or wish to file a report.
What Is the Gig Economy?
Individuals who work as freelancers or independent contractors are said to work in the gig economy. This is an economic system where workers, referred to as gig workers, participate in freelance employment.
This economy includes on-demand work, usually involving small tasks or projects. Workers in the gig economy are typically only paid for tasks completed in a temporary work arrangement.
Businesses may employ workers for temporary work assignments or short-term commitments, which allows them to provide different types of products and services. Companies may favor this arrangement in some situations as they will not be required to provide the worker with sick leave, office equipment, health insurance benefits, and other things given to employees.
A gig worker may work under many different titles, including, but not limited to:
- Temporary hires
- Part-time hires
- Freelancers
- Independent contractors
- Project-based workers
This category of workers has greater flexibility in their schedules. Even though this type of work can offer the worker flexibility, the laws that govern these issues continue to evolve.
Do I Need a Lawyer?
If you have any concerns or questions about the California AB 5 law or classification of workers, it is important to consult with a California employment lawyer. If you are an independent contractor, your attorney can ensure that you are correctly classified and that you get all of the benefits you are entitled to.
If you are an employer, your attorney will ensure that you comply with all applicable federal and California laws in the classification of your workers. In addition, your attorney can draft employment contracts for your workers that clearly outline all of the details related to their employment.
The lawyer matching services provided by LegalMatch can help you find an employment attorney who can help you with your worker classification issue. It only takes around 15 minutes to submit your question on the website for free, and in around 24 hours, you will get responses from attorneys near you who are ready to help.
