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Businesses can avoid litigation by correctly labeling workers

The gig economy has changed how many companies utilize today’s workforce. Whether they’re a small business or an international corporation, many are starting to hire independent contractors to save money. However, companies should make sure they’re not treating their contractors like full-time employees to avoid legal troubles.

This issue has become prevalent in California, especially after AB5 got passed in September 2019. Under the new labor law, the majority of California workers get labeled as employees unless they meet specific qualifications.

Understanding the difference

When someone is an employee, they typically earn an hourly or salaried wage and receive benefits like health insurance, paid time off and a retirement savings plan. When someone becomes an employee, they often have to fill out a W4. In terms of oversight, employers typically have more control over when, where and how employees perform their duties.

Even though contractors perform similar work to employees, their status is slightly different. Typically, contractors don’t receive the same type of benefits or protections that employees have. That’s because most contractors get brought on to complete specific projects requested by the organization. For completing those projects, contractors typically have to provide their own tools and equipment. When it comes to getting paid, contractors typically bill the business for their services rather than receiving a check off of the payroll.

Questions that can help determine a worker’s status

Businesses may want to consider these questions when it comes to how they label and treat different types of workers:

  • Are there aspects of the worker’s job that are controlled by the payer?
  • Are workers reimbursed for their expenses?
  • Does the company or the individual supply the worker with the necessary tools to perform the job?
  • Is the work performed a vital proponent of the business’s services?
  • Does the company directly pay into their benefits?

Businesses should make sure they’re in compliance

If companies are found guilty of misclassifying workers, they could pay a high price for it. Not only could they have to reimburse mislabeled workers, they may also face tighter scrutiny from federal and state regulators. Business owners who are unsure about their workers’ employment status may want to reevaluate duties and seek legal assistance. That way, they can make sure they comply with federal and state guidelines.