Top Mistakes Employers Make When Classifying Workers in California

As a California employer, it is crucial that you classify workers correctly as either employees or independent contractors (ICs). The Division of Labor Standards Enforcement (DLSE) has made it clear that, regardless of the reason for employee misclassification, such classifications can be costly for employers. Unfortunately, many California employers still make common mistakes when it comes to classifying workers. Below are some of the top errors employers make when classifying workers in California;

1. Not Applying the ABC Test

In California, the ABC test determines if a worker is an employee or an independent contractor. This test, established under AB 5, outlines the conditions that must be met in order for someone to be considered an IC. Under the ABC test, a worker is considered an employee unless all the following are true;

1. The worker is not controlled or directed by the employer
2. The worker does work that differs from the normal course of the employer’s business
3. The worker frequently performs services in a trade or profession they operate individually, which closely resembles the work they are currently doing

One of the most common mistakes employers make is not applying the above test when classifying workers.

2. Going by a Written Agreement

Some employers believe that if an agreement states an employer is an independent contractor, then the classification is legal. However, California law does not consider agreements when enforcing classification rules. Even if you and a worker agree to a contractor relationship, if the above test is not satisfied, the worker is legally considered an employee.

3. Letting the Worker Choose Their Classification

A worker may request or even agree to be treated as an IC. However, like it is with written agreements, California law does not consider worker preference when enforcing classification rules. Therefore, workers should not be allowed to classify the employer-worker relationship.

4. Assuming Pay Structure or Benefits Determine Worker Classification

Some employers believe that if they do not offer benefits such as retirement plans or sick leave, they can treat a worker as an independent contractor. Some believe they can call the worker an employee if they provide the worker with benefits. Other employers believe they can choose not to offer benefits, but pay a higher rate and treat the worker as an IC. However, how you pay a worker or whether they receive benefits does not decide their classification. That decision is up to the law.

5. Using One Classification for All Workers

Another common mistake that employers make is using a one-size-fits-all approach when classifying workers. Don’t assume that if one person in a role qualifies as an IC, others with the same responsibilities will too. You must evaluate each classification decision individually based on the specific work arrangement. Variables such as supervision and job duties can vary from person to person and affect whether they are legally an employee or an independent contractor.

Contact Us for Legal Guidance

Our skilled employment attorneys at SAC Attorneys LLP can help ensure you correctly classify your workers to avoid costly misclassification consequences. Contact us today to schedule a consultation.