You may be familiar with a 12-factor test or a three-factor test or a lot of different tests that the EDD supposedly uses to classify independent contractors. Through years of professional experience, I’ll just tell you that a lot of this stuff is bogus. What this really comes down to is, it really comes down to two categories.
Number one, is the person involved with the businesses at 1099 essential to the revenue generation activities of the business? If you employ somebody as a 1099 is what they’re doing directly generating revenue for you? If they are associated with the revenue-generating activities of the business, they’re probably not going to be viewed as a 1099 employee. Uber is a great example, all these uber drivers that are going around are integral to Uber’s ability to generate revenue. Therefore California comes in and views them a W2s versus 1099 employees.
The second issue that you have to consider is the nature of the control that the employer has over the 1099 worker and the level of independence that the 1099 worker has. It’s great to establish workers as independent businesses. Evidence of a business license, evidence of business card, evidence of a website, or other marketing materials that are going to establish that the worker is marketing their services out independently. Their relationship with the employer is great but really once the–
They’re going to examine the relationship itself. They’re going to look to see how much dominance the employer has, whether the negotiating platform is equal or whether it’s tilted towards the employer. You have to keep in mind that the independent contractor rules are put into place in order to, it protect employees who are being classified, or misclassified as 1099 workers to avoid payroll taxes.
The state, admittedly, has gone a little over-aggressive with this and essentially trying to legislate 1099 workers out of California or at least some people are. If you ask the EDD officially, they won’t tell you that. If you ask the auditors, unofficially, they will tell you that. But anyway, going back to the topic in hand. If there is a level of control that the employer has over the worker, then they’re also going to be classified as a W2 versus a 1099. Knowing all this going in, you can start to build your case.