Whether an individual is an employee or independent contractor is significant to associations. If a worker is an employee, the association is responsible for payroll taxes, federal and state unemployment insurance, and federal social security and medicare withholdings. In addition, the association must provide worker’s compensation insurance and comply with state and federal laws protecting employees.
In 2018, the California Supreme Court adopted a more stringent test for determining whether individuals are employees or independent contractors. Previously, there was no presumption of status and multiple factors were used to determine whether an individual was an independent contractor. Now, an individual is presumed to be an employee and the burden is on employers to show otherwise. (Dynamex Operations West v. Sup. Ct.)
In 2019, the legislature codified the strict "ABC" test for employee versus independent contractor classification adopted by the California Supreme Court in the Dynamex case. All workers are presumptively considered employees and may only be classified as independent contractors if the hiring business demonstrates the worker satisfies each of three conditions:
(i) 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,
(ii) the worker performs work that is outside the usual course of the hiring entity's business, and
(iii) the worker is customarily engaged in an independently established trade, occupation, or business. The hiring entity's failure to prove any one of these three prerequisites will be sufficient in itself to establish that the worker is an employee, rather than independent contractor.
Recommendation: Associations should have legal counsel review their independent workers to determine if they are truly independent contractors or employees of the association. Misclassifying someone could have significant ramifications related to minimum wage requirements, overtime, and payroll withholdings. See "Employee Misclassification."
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