The Bay Area is the land of startups. It is one of the few places in America where someone with a great idea and a solid work ethic can quickly turn those assets into a successful company. And once the company begins to turn a profit, that small business quickly becomes an employer and job creator.
If you run a startup and are thinking of expanding, you should know that hiring employees is not always as straightforward as it should be. Even as a small company, you run the risk of violating employment laws if you haven’t done adequate research on what your legal responsibilities are. One of the most common mistakes startups make is misclassifying employees as independent contractors.
Business owners like hiring ICs because the business does not have to assume liabilities (workers’ compensation), pay benefits (medical insurance) or comply with wage and hour laws regarding employees. As you may know, however, many businesses intentionally misclassify workers as ICs, which can lead to costly litigation and fines from government regulators.
The differences between employees and independent contractors can be subtle, so you should know what to look for:
Workers are generally employees if you have significant control over how, when and where they get work done. You may provide the tools and equipment they use. They may work in your facility most of the time. You may set their work schedule and have the authority to manage how they spend their time from day to day. If you pay your worker an hourly or daily rate as opposed to an overall project fee, that worker is most likely an employee.
Workers are generally independent contractors if they have specialized skills and have an occupation or business that is separate from yours. ICs generally have control over how and when they do their work, just so long as they meet a predetermined deadline. They also tend to use their own tools and equipment rather than relying on your company to provide them.
Although these are good rules of thumb, they do not apply uniformly to all employees and independent contractors. If you have additional questions or are unsure how to classify certain workers at your company, please contact an experienced employment law attorney.