IRVINE, Calif., May 2, 2018 /PRNewswire/ -- In the United States, under both Federal and State Law, workers can potentially be classified as either "employees" or "independent contractors." This distinction carries significant tax and other legal repercussions for business owners, particularly with regards to payroll taxes, income tax withholding and worker's compensation insurance. For this reason, financially-strained business owners have a history of deliberately misclassify their workers as independent contractor where they should rightfully be classified as employees.
On April 30, 2018 the California Supreme Court issued a ruling which significantly skews the previous criteria for classifying workers as employees or independent contractors towards a finding that a worker is an Employee. Thus, it is now more crucial than ever for business owners to ensure proper classification of its workers. If you are a business owner, take heed: this ruling could directly impact your bottom line. Additionally, other States are highly likely to follow California's revenue generating example and establish similar legal precedents of their own.
California Business owners must now establish three concrete facts to legally classify workers as independent contractors. These facts are as follows:
That the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
That the worker performs work that is outside the usual course of the hiring entity's business; and
That the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.