It’s no longer about control. Independent contractor classification is more about work toward the core business objectives and income stream than about control. Recent changes in the approach of the EDD and California tax agencies as well as the IRS on the nature of the Independent Contractor relationship are a genuine concern for San Diego businesses. For the past few decades, most IRS and California tax agencies applied tests that included:
- The control of your company over the contractor’s appointments or work schedule
- The provision of tools, equipment, technology or a vehicle
- Supervision over how the contractor sequenced and performed their work
A recent California Supreme Court decision has substantially and clearly changed the line between independent contractor and employee. The first and most important aspect of the decision is the new legal presumption in California that all workers are classified as employees, and if the employer wishes to classify them otherwise the burden of proof rests with the provider of the work.
The Supreme Court noted that you must consider not only the employment relationship between the parties, but the economic relationship as well. If a contractor earns a substantial portion of their income (or all of it) working for your company, you may have substantial challenges ahead. If an independent contractor’s work directly contributes to your company’s production and revenue you should definitely be concerned.
The re-classification of a 1099 worker or an “independent contractor” to an “employee” during any agency audit brings substantial expense to any business. The IRS and California tax agencies work hand in hand to pursue you for back payroll taxes, unemployment, disability and other benefits exposing you to substantial contingent legal and financial liabilities.
San Diego employers must give serious consideration to the nature of the relationship between their company and all independent contractors. If independent contractor classification is more about work toward the core business, providing company services or creating or delivering company products it’s time to re-evaluate your employment classification paradigm.
It may be necessary to review existing contracts, and consider the nature of your business relationships. If you are concerned about the nature of your company’s relationship to 1099 workers or independent contractors relationship and/or independent contractor classification is more about work toward the core business objectives and company profitability a financial storm may be on your doorstep. We invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
