Do you know the difference between an employee and an independent contractor?
The basic test for determining whether a worker is an independent contractor or an employee is whether the principal has the right to direct and control the manner and means by which the work is performed. When the principal has the “right of control,” the worker will be an employee even if the principal never actually exercises the control. If the principal does not have the right of direction and control, the worker will generally be an independent contractor.
If, on the face of the relationship, it is not clear whether the principal has the “right of control,” there are secondary factors that are considered to determine the existence or nonexistence of the right of control.
Can the worker quit or be fired at any time? Is the work considered unskilled or semi-skilled labor? Is the worker paid a fixed salary, an hourly wage, or based on a piece rate basis? These are some questions that help determine whether someone is an employee or independent contractor.
The Employment Determination Guide (DE 38) is available to help business owners determine whether a worker is an employee or an independent contractor. The EDD also offers no fee Tax Seminars that teach employers and agents about employees versus independent contractors and their reporting requirements. Make sure your workers are classified correctly.
Here’s more helpful information about independent contractors:
- Independent Contractor Reporting
- FAQs – California Independent Contractor Reporting
- FAQs – Reporting Independent Contractors (DE 542) Online (iICR)
- Independent Contractors Misconceptions Brochure (DE 573M)
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