California EDD: 1099 Contractors vs Employees How to Tell the Difference

The primary goal of the California Employment Development Department (EDD) is to investigate companies whose employees are potentially misclassified as independent contractors when they should be classified as employees.

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When determining whether your workers should be classified as employees or 1099 contractors, take the example of the plumbing company that hires additional plumbers to handle an excess of work at a given time. Those workers do exactly what your employees do and therefore would be classified by EDD as employees.

There are new tests to help employers determine whether their workers should be contractors or W-2 wage earners. EDD provides a thorough worksheet including 13 questions to help employers determine the correct classification of their workers.

While the questions provided to help determine proper classification are extensive, they often still result in relatively grey areas. In the event that the worksheet provided by EDD does not result in clarity for your workers’ classification, reaching out to a tax attorney or tax specialist, such as our team at got1099, can support the clarification of said grey areas.

The questions included in the worksheet provided by EDD include the following:

Questions 1 – 3: Answering “yes” indicates the worker is an employee.

Do you instruct or supervise the person while he or she is working?

When a worker is required to follow company procedure manuals and/or is given specific instructions on how to perform the work, the worker is normally an employee.

Can the worker quit or be discharged (fired) at any time?

Independent contractors are engaged to do specific jobs and cannot be fired before the job is complete unless they violate the terms of the contract.

Is the work being performed part of your regular business?

Do you use the worker in everyday operations or from time to time for specific tasks? Could you use another worker for the next instance of that task?

Questions 4 – 6: Answering “no” indicates that the worker is an employee.

Does the worker have a separately established business?

Does the worker perform similar jobs for other clients, advertise for his/her own business in publications, and hand out business cards?

Is the worker free to make business decisions that affect his or her ability to profit from the work?

Independent contractors are in control of their own acquisition of equipment and facilities.

Does the individual have a substantial investment in their job which would subject him or her to the financial risk of loss?

Independent contractors furnish the tools, equipment, and supplies needed to perform the work.

Questions 7 – 13: Answering “yes” indicates the worker MAY be an employee.

Do you have employees who do the same type of work?

Is the work being done to handle an extra workload or to replace an employee who is on vacation? A worker is hired to fill in on a temporary basis.

Do you furnish the tools, equipment, or supplies used to perform the work?

Independent contractors furnish the tools, equipment, and supplies needed to perform the work.

Is the work considered unskilled or semi-skilled labor?

Workers who are unskilled or semi-skilled are the type of workers the law is meant to protect and are generally employees.

Do you provide training for the worker?

Independent contractors usually do not need training.

Is the worker paid a fixed salary, an hourly wage, or based on a piece-rate basis?

Independent contractors agree to do a job and bill for the service performed.

Did the worker previously perform the same or similar services for you as an employee?

Once an employee, always an employee.

Does the worker believe that he or she is an employee?

Intent is a factor to consider when making an employment or independent contractor determination.

Answering “yes” to questions 1-3 would provide a strong indication that the worker is an employee. Answering “no” to questions 4-6 would indicate that a worker is not in business for themselves and would likely classify as an employee. Lastly, questions 7-13 may indicate important factors to be considered. While answering “yes” to any one of them may indicate that a worker should be classified as an employee, no single factor is enough to determine so independently.

The full worksheet provided by EDD provides further clarification on certain factors and circumstances. If completing the provided worksheet does not provide sufficient clarification for employers, EDD offers the ability to request a written ruling by completing a Determination of Employment Work Status.

Reviewing the status of your employees one by one can be a time-consuming, lengthy, and potentially flawed process. If your company needs additional support and verification, contact our team of experts at got1099.