Independent Contractor vs. Employee: What You Need to Know

Independent Contractor vs. Employee

Determine whether a worker is an independent contractor or an employee.

Do you, as a business owner, understand the difference between an independent contractor and an employee? A recent California Supreme Court ruling has changed the standard by which a worker is classified as an employee or an independent contractor based on the answers given to an “ABC” test. The test, detailed in the ruling of Dynamex Operations West Inc. v. Superior Court of Los Angeles County (Lee), is now the standard in California. The questions are:

A) Is the worker 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?

B) Does the worker perform work that is outside the usual course of the hiring entity’s business?

C) Is the worker customarily engaged in an independently established trade, occupation or business?

If the answer to any of these three questions is “No,” the worker is to be classified as an employee, and the hiring business an employer. The employee classification provides the worker with protections of various labor laws, including minimum wages and meal and rest periods, family medical leave benefits and other protections of employment, including workers’ compensation.

In the Dynamex case, The Court set out a presumption of employee status, placing the burden on the employer to prove an individual is an independent contractor as opposed to an employee. Although this case did not arise out of an industrial injury case, the ABC test detailed by The Court will likely be considered in the future by the Workers’ Compensation Appeals Board in disputes over employment status.

It is important that businesses know the difference between an independent contractor and an employee, and how that affects the workers’ compensation insurance. To properly protect your business and team, the right insurance should be obtained. Even if you only have one employee, workers’ compensation is a must.

Talk to your insurer about how to insure your employees with workers’ compensation. Contact the professionals at Lloyd S. Berkett Insurance Agency for quality insurance to protect your business’s finances and workers. We serve Los Angeles, CA and surrounding cities with reliable coverage.

Give us your questions, feedback and opinions on this topic.

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Los Angeles, CA 90064

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