A California independent contractor agreement is used by employers to outline the terms of an independent contractor’s work.
Independent contractors should utilize a separate contractor agreement that clarifies their work status whenever they accept any work in California. This practice ensures adherence to California’s unique laws and regulations governing independent contractor relationships, which you can learn about below.
- Worker Classification: ABC Test
- Tax Structure: Gradual-rate Income Tax
- Definition: Labor Code § 3353
- At-Will Employment: Yes (with exceptions)
Understanding Worker Classifications
Worker classification in California is a critical aspect of employment law, influencing tax obligations, legal protections, and worker rights.
Misclassifying workers in California, even unintentionally, is risky. If an employer wrongly labels a worker as an “independent contractor”, it could result in inadequate insurance coverage, leaving the employer liable for expenses, legal consequences, penalties, and back taxes in case of accidents or disputes.
Worker Classification Test
California uses the ABC test to determine whether a worker is an employee or independent contractor. California Labor Code § 2750.5 requires an employer to consider a worker an employee unless three conditions are met:
- The worker is free of all controls and directions by the hiring entity.
- The worker performs work that is outside the course of the hiring entity’s business.
- The worker is engaged in an independent trade or occupation that is the same as the work they were hired to do by the hiring entity.
In other words, the worker must have been hired to do something the employer normally does not do and may not be constrained in any way by the employer while working.
Independent Contractor vs. Employee
An employee is any individual who works for an employer and is paid by them except under the restrictions above.
Independent contractors are self-employed and maintain control over their work, while employees work under an employer’s direction. Per Labor Code § 3353, independent contractor means ‘any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.’
Rights and Responsibilities
California independent contractors have the same rights and privileges as other workers in the state. Specifically, independent contractors have the right to:
- Payment for work done – All workers have the same rights to payment, whether they are contractors or employees.
- Correct classification – The California Supreme Court ruled in Dynamex Operations West, Inc. v. Superior Court of Los Angeles County that the employer must inform the worker whether they are an employee or a contractor and treat them accordingly.
- Legal recourse – Contractors have the right to sue employers for breach of contract, misclassification, and other contractual obligations [1] .
State Taxes
Independent contractors pay California state taxes according to IRS guidelines. The employer does not withhold taxes. The contractor is responsible for paying their own federal and state taxes [2] .
Filing for Unemployment
Partial unemployment may be available for some independent and self-employed workers under certain conditions. The Employment Development Department (EDD) recommends that all unemployed workers apply to determine whether they qualify for benefits.
Other Considerations
- Labor Code section 226.8 prohibits willfully misclassifying an employee as an independent contractor, with fines between $5000 and $25,000 per violation. “Willful misclassification” is defined as voluntarily and knowingly classifying an employee as an independent contractor or classifying an independent contractor as an employee.
- The rules and code sections regarding independent contractors do not apply to interns or volunteers. Those definitions are found in the Division of Labor Standards Enforcement Policies and Interpretations Manual.
Sample
Below, you can download a California independent contractor agreement in PDF and Word format:
