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Employees Vs. Independent Contractors: What's The Difference?

employees-vs-independent-contractors.pngA federal judge in California has rejected a settlement put forward by Uber to resolve the class action lawsuit against them by their drivers, according to Reuters. The ridesharing giant has classified its drivers as independent contractors for years, but the drivers argue that they are actually employees. This would mean that Uber would have to pay the costs of fuel and maintenance, which would amount to millions of dollars. The damages are so high, in fact, that the judge threw out Uber's settlement offer of over $100 million because it was too low. Now lawyers for the two sides are back at the negotiating table to try to work out a new settlement.

Discerning the Difference Between Employees and Independent Contractors

This isn't the first legal battle where employers want to categorize drivers as independent contractors. The Los Angeles Times reports that the airport rideshare company SuperShuttle sued the state of California earlier this year to have its drivers classified as independent contractors. Five SuperShuttle drivers are suing the company in a separate action to recover back pay as employees. Part of the argument is that SuperShuttle had a high level of control over the driver's work and lives, tracking their driving, and setting their schedules.

What does it mean to be an independent contractor?

Up to 8% of the total U.S. workforce are considered independent workers. But what makes a worker an independent contractor instead of an employee? The general idea is that employees depend on their employers for income, whereas independent contractors are in business for themselves. Sometimes the line between these two can be very unclear, so the federal Department of Labor uses a number of criteria to determine which side of the line a worker falls on.

Are you an employee or independent contractor?

  • Does the business pay you for your time or for your results? The California Labor Code defines an independent contractor as a "person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished." In other words, a contractor delivers a product or service, whereas an employee carries out a task. An employee gets paid whether or not a particular outcome occurs, whereas a contractor's pay might be contingent on whether they come up with a result. If you get paid for your time regardless of the result, you are probably an employee.
  • Is the work integral to the business? If a company pays you to do something central to the business, like the kind of work that brings the company most of its profit and without which it can't continue, then you are probably an employee.
  • Does the worker invest their own money in the business? An independent contractor usually invests their own money in their work. For example, they might own the equipment or tools that they use or pay for materials like fuel. If you do not put your own money into the business, then you are probably an employee.
  • Is the work relationship permanent? The relationship between employer and employee is usually permanent, while the relationship between business and independent contractor is usually temporary. The business hires the contractor to perform a specific piece or period of work, whereas the business hires the employee to work indefinitely. If you have a permanent relationship with the business, you are probably an employee.
  • Does the work involve independent business initiative? Independent contractors are in business for themselves, so the law expects them to act like it. Independent contractors have relatively wide latitude to make business decisions, like how much work to take on and when to do it. On the other hand, employees usually have less opportunity to exercise independent business initiative. They work according to a schedule and business model that their employer establishes for them, and they cannot make independent decisions about how the overall business operates. If your employer sets a fixed schedule and tells you what kind of work to do and when, you are probably an employee.

Employees vs. Independent Contractors: For Further Reading

  • Labor Department's 6-Part Test for Classifying Employees, Independent Contractors via Insurance Journal
  • Independent Contractor (Self-Employed) or Employee? via IRS.gov
  • Independent contractor versus employee via State of California Department of Industrial Relations

If you feel your employer has misclassified your employment status, then they could be violating California labor and employment laws. Contact the expert Los Angeles employment lawyers at Hennig Ruiz for your free consultation today.

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