Independent Contractor Compliance Blog - by Collabrus™

Under California law an employer who meets seven tests is a “temporary service employer” and becomes the “Statutory Employer” of the workers (which supersedes common law). Two separate California Codes; the Unemployment Insurance Code (Unemployment Insurance Tax Disability Insurance Tax, Employment Training Tax, Personal Income Tax Withholding and reporting of new employees) and the California Labor Code (Wage and Hour Requirements and Workman’s Compensation Insurance) have virtually the same wording in defining the “employer” for temporary service workers. 

That means forget about calling them independent contractors if your company meets all seven of the tests listed below:

1. Negotiates with clients or customers for such matters as time, place, type of work, working conditions, quality, and price of the services.
2. Determines assignments or reassignments of workers, even though workers retain the right to refuse specific assignments.
3. Retains the authority to assign or reassign a worker to other clients or customers when a worker is determined unacceptable by a specific client or customer.
4. Assigns or reassigns the worker to perform services for a client or customer.
5. Sets the rate of pay of the worker, whether or not through negotiation.
6. Pays the worker from its own account or accounts.
7. Retains the right to hire and terminate workers.

There are a few rare exceptions

There are some additional rules for such things as borrowing an employee from another company, farm labor, the garment industry and some special circumstances with non-profit organizations. In general these special circumstances do not apply to 99%+ of all businesses and we can safely overlook them. Sometimes, Workman’s Comp also gets muddled. (See below for more information on this issue).    

A good agency protects the client company

This means if you engage a temporary agency, or a professional-level payroll services firm such as Collabrus, to provide you with temps you can know you won’t be hit later with an unplanned assessment, or other liability, for not handling the workers as your employees. You are protected, because the law defines the temp service company as the employer.

But it’s really more complex than that

The only area where these statues sometimes do not apply (again this is a complex area we can’t cover in detail here) is when no one covers the workers for Workman’s Compensation Insurance and the worker is injured on the job. In my experience the Department of Industrial Relations looks to the company that covers the worker for Workman’s Comp without digging deeper, but goes after everyone if no one covered the worker.

Also the newest bill waiting for California’s Governor to sign will change the pay schedule for temp workers. See my other article on SB 940 for details on that expected change.

You need to use a professional

These complexities validate the need to seek out true professional assistance when you are considering the use of temporary workers in your business. It’s just becoming too complicated to employ the “Ready-Fire-Aim” method of hiring temps (be they employees or IC’s) in today’s highly regulated world.