Recent changes in California law regarding the classification of independent contractors vs. employees can have a serious impact on the way you’ve been doing business. The Supreme Court shook up the business world when they changed the guidelines that define who qualifies as a Contractor and who qualifies as an “employee”. Failure to apply the correct classification can lead to significant penalties for employers.
So, who qualifies as a true contractor? If yours is a business that often hires temporary or short-term workers who were formerly classified as contractors, how can you smoothly manage the paperwork onslaught and changes to your organization’s employment procedures?
“Employee” vs. “Contractor”: How to Tell the Difference
To determine whether a worker truly qualifies as a Contractor, you must be able to answer the following questions:
- Is the worker free from control and direction under the contract? This essentially means: do you control the direction that individual’s work takes? For example, say you hire a someone for a finite project, such as writing an employee handbook. If you provide input on their work along the way—reviewing the writing, providing input and guidance, asking for revisions—that individual is acting under your direction and control and therefore qualifies as an employee. If you hire someone on a temporary basis to build a fence around your office, and you provide no input and guidance along the way, they qualify as a Contractor.
- Does the worker perform work outside of the usual course of the hiring entity? In plain English, this basically means: can the person come and go as they please? Do they make their own hours? Are they typically working out at various client locations? Are they working with several clients concurrently? If so, they’re a Contractor.
- Is the person engaged as an independently established business? Is the person a sole proprietorship? Are they incorporated as an LLC, S-Corp, or C-Corp? Individuals who are not incorporated may qualify as employees, no matter how short-term their engagement.
If you’re still unclear as to whether a particular worker qualifies, the California Employment Development Department (EDD) has a useful worksheet that can help.
Look to your staffing agency for help
If your staffing needs are project-dependent, you might find yourself in a bit of a tight spot. You’ll need to be much more diligent about classifying your employees correctly, which will take time and manpower. Luckily, your staffing agency partner is already set up to help reduce your burden.
Staffing agencies manage temporary and short-term employees as a matter of course. They have all the procedures and W-2 paperwork in place to assume the role of a short-term worker’s “employer of record”. The employer of record handles all administrative and personnel responsibilities associated with bringing on that short-term worker, including payroll processing, tax filing and withholding, and issuing an employment contract. By offloading this role onto a staffing agency, you protect your company from the risk of misclassification and save your HR department of burden of frequently onboarding and releasing short-term employees.
Even if you don’t currently work with a staffing agency for new employee acquisition, you can utilize an agency solely for the purpose of acting as employer of record. Today’s gig economy has introduced workers to various apps, online service and third-party partners for various aspects of hiring, so asking new short-term hires to work with your partner for onboarding and payment shouldn’t cause confusion.
Choose your employer of record partner carefully
Many staffing agencies are equipped to handle this type of service, but it’s not a given. It’s important to select the correct employer of record, or else you risk exposing your organization to the very liability you are trying to avoid.
One of the best ways to determine if a staffing agency is equipped to manage short-term employees on your behalf is ask them about the type of benefits new employees are eligible for. Like any good employer, reputable staffing firms will have an established set of available benefits and requirements for eligibility, even for ultra-short-term W-2 employees. Steer clear of any staffing firm with no clearly-articulated benefits plan. They might be cutting corners that could end up costing you.
The State of California is taking independent contractor classification seriously—so should you. If you use any number of short-term/“contract” employees at your organization, now’s the time to review your classification and hiring process. If you find that many of the workers you currently use will need to be classified as W-2 employees moving forward, tap your staffing agency to manage the onboarding process quickly and correctly, so you can get on with business.
Do you have questions about whether members of your workforce qualify as employees or Independent Contractors? Our staffing experts can help you sort it out.
Watch now to learn more about Transition Staffing Group.