As an employer in California, it is important to be aware of and understand the wage and hour rules and regulations set forth in the Labor Code. An employer’s failure to do so can lead to lengthy and costly litigation. One of the most common allegations against employers in California falls under California’s Labor Code laws. This article provides a brief rundown of how California’s Labor Code laws apply to independent contractors. For information on how California’s Labor Code laws apply to exempt and non-exempt employees, please see https://rupallaw.com/correctly-classifying-your-employees/
What You Need to Know About California Overtime Pay:
In general, nonexempt employees must receive pay at 1.5 times their regular rate for all hours worked in excess of 40 hours per workweek. An employee may also be eligible for 2 times their regular rate if they work more than 12 hours in one day, or more than eight hours on the seventh consecutive day of the workweek. There are significant qualifications to overtime pay requirements.
Employee vs. Independent Contractor:
For the purposes of California’s Labor Code, workers are classified as either exempt or non-exempt employees or independent contractors. If a worker is classified as an independent contractor, they are exempt from overtime pay. On the other hand, if a worker is classified as an employee, the employee is generally nonexempt. Employees are also provided with overtime pay and other benefits and protections under California labor laws. Depending on their job description and the nature of their work, workers in California will be classified as one of the two after applying a test provided by state law.
Who is exempt from overtime laws?
In January 2020, a new California law took effect to address the employment status of workers classified as independent contractors. This law requires the application of the ABC test to determine if workers in California are either employees or independent contractors for the purposes of the Labor Code, Unemployment Insurance Code, and the Industrial Welfare Commission (IWC) wage orders. The test, when applied, presumes that a worker is an employee rather than an independent contractor, unless all three of the following ABC test conditions are met:
1. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
2. The worker performs work that is outside the hiring entity’s business.
3. The worker is routinely engaged in an independently established trade, occupation, or business that is the same nature as that in the work being requested and performed.
Because the ABC test begins with the presumption that the individual is an employee rather than independent contractor, the burden of showing the individual is an independent contractor falls on the employer. The ABC test creates a very high burden for employers to overcome, meaning as an employer in California it is imperative to understand the ABC test to ensure you are properly classifying your workers from the outset.
How to apply the test to determine a worker’s employment status?
Each of the following three conditions must be satisfied in order for an employer to properly classify a worker as an independent contractor.
Part 1: Is the worker free from the control and direction of the hiring entity in the performance of the work, both under the contract for the performance of the work and in fact?
First, an employer must not, either in practice or contract, have control or direction over the worker’s services. Some factors to consider as an employer are: 1) the amount of immediate control over the worker; 2) whether the employer provides a workplace and supplies for the worker; and 3) the degree of instruction the worker receives from the employer. Ultimately, if it is determined that the worker is predominantly subject to the control of the employer, they are considered an employee rather than an independent contractor.
Part 2: Does the worker perform work that is outside the usual course of the hiring entity’s business?
Second, the employer’s business must be separate from that of the worker hired. Stated differently, to satisfy the second prong of the ABC test, the services provided by the worker must be outside the usual course of business of the hiring employer. Generally, if a worker provides services comparable to an existing employee of the employer, then those services will generally be viewed as services within the usual course of the employer’s business.
Part 3: Is the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity?
Lastly, an employer must show that the worker engages in a separate business independent from the work being performed for the employer. Employers should refrain from categorizing a worker as an independent contractor solely based on the worker’s job title as an independent contractor. Simply designating a worker as an independent contractor has no legal consequence as to whether the worker is in fact an employee or independent contractor. Ultimately, to satisfy this final prong of the ABC test, the worker’s business should still exist even if the employer terminates its relationship with the worker. If an individual’s work relies solely on the employer seeking the worker’s services, then this final condition is not met.
If any one of these conditions are not met, then the worker is considered an employee and entitled to overtime pay.
What are the penalties for violating California overtime laws?
If an employer misclassifies an employee, they can be required to pay fines and penalties for wage violations in the form of back pay and benefits. California Labor Code section 226.8 also imposes a civil penalty of up to $25,000, per violation, on an employer that willfully misclassifies individuals as exempt. As noted earlier, it is important that employers refrain from intentionally misclassifying employees as exempt merely to avoid paying overtime and providing the employee with the benefits they are otherwise entitled to receive.
How can I comply with California overtime laws?
Understanding and complying with the complex and ever-changing wage and hour laws at the local, state, and federal level can feel impossible. At Rupal Law, our attorneys have significant experience advising employers on how to manage any wage and hour lawsuit they may encounter, and how to ensure compliance with the Labor Code moving forward to avoid any subsequent wage and hour lawsuits.
For an obligation free consultation, please email us at info@rupallaw.com, or give us a call at (951) 460-0830.
