Newly implemented law SB 459 amends the Labor Code with respect to independent contractors. The penalties and potential disciplinary action against a contractor for purposefully misclassifying an employee as an independent contractor will result in fines of $5,000 to $15,000 for the first offense and between $10,000 and $25,000, per violation for repeated violations of the Labor Code. Additionally, failing to maintain workers compensation insurance, for misclassified employees, in violation of Business & Professional Code 7125, can result in you being automatically deemed an un-licensed contractor.
Whether a person can or cannot be classified as an independent contractor depends on several factors. As a matter of law it is a rebuttable presumption that a person performing work at your request is an employee. In other words, the person in question is presumed to be your employee unless you can prove that the person in question is truly self employed.
It is fairly safe to say that an independent contractor is really an employee if:
(1) He does not have a contractor license to perform work that requires a contractor license.
(2) He does not purchase and supply materials for his scope of work.
(3) He did not present you with a written proposal or contract.
(4) He does not control the days, time and hours that he works on your project.
(5) He does not control the manner or means by which an end result is reached.
(6) He is paid an hourly or daily rate.
(7) He does not have a store front, business license or advertises as a business.
As indicated the burden is on you to prove that the individual in question is an independent contractor. The safest route to follow is to only hire licensed contractors and treat everyone else as your employee. Put the person in question on your payroll, take out taxes and maintain workers compensation insurance for them.
The only exceptions to this rule are as follows:
The Contractor’s License Law does not apply when the entire project is under $500 in value. Example: If the project is to build a house but a subcontractor’s portion of the work is less than $500 that subcontractor still needs to be licensed. For the exemption to apply, the entire project must be less than $500.
Definition of Contractor:
A good rule of thumb to follow is if one is doing some physical work that alters or adds to a structure, and that work becomes part of the real estate or the person is building something to be affixed to the real estate, then that person is defined as a contractor.