When is a freelancer not an independent contractor?

When is a freelancer not an independent contractor? When she is a statutory employee.

Many states have laws that say workers are employees, unless you can show they are not. To show that someone is an independent contractor, you generally have to give people discretion over how they perform their work; they tend to use their own equipment, tools and resources; and they usually work by the project instead of for an indefinite period. There are many factors and no specific formula, but the more autonomy over the means and methods of doing the work, the better the chance of showing someone is an independent contractor.

Still, sometimes even people who meet the general test for a freelancer or independent contractor are employees because of specific laws. Two examples in California are work for hire and unlicensed contractors.

Work For Hire

In California, anyone who is doing work for hire under a written contract, where the hirer gets the copyright and ownership of the work, is an employee, not an independent contractor. Labor Code 3351.

This means if you hire bloggers to write content for your website, or you hire someone to write a technical manual, or you hire coders to write a program, they are your employees.

One way to handle this is for the hirer not to transfer the ownership of the copyright and just to take an unlimited license. But if there are trade secrets at stake or you want exclusive ownership, then you are also stuck with an employment relationship.

Unlicensed Contractors

Under California law, if the work requires a license, then the worker must have a valid license to be an independent contractor. If the license is expired or invalid for any reason, the person becomes an employee of the hirer. Labor Code 2750.5

This comes up when you hire someone to paint the building, trim trees, or do any renovation or construction work. And even if they are licensed, if their workers’ compensation insurance is not valid, then the license is automatically suspended and they become your employee, even though there is virtually no way to know if their insurance is in effect. But ask anyway about both their license and insurance and get proof that they have both before they start work.

Even more confusing, a hirer is not required to pay an unlicensed contractor for the work, even though they are effectively employees subject to wage hour law.

Then Really Bad Stuff Happens

Usually when you hire an independent contractor, they are in charge of how they do the work, take the risk of getting injured, and are not subject to wage hour laws or paychek withholdings, and are not eligible for benefits.

But if you end up with a statutory employee, then the hirer is suddenly subject to wage hour laws, tax withholdings, required to provide workers’ compensation insurance, and depending on the hours worked, could be responsible for providing health insurance and other benefits. The hirer is also suddenly responsible for work place safety and compliance with OSHA and other safety regulations.

In some cases, failure to comply with the laws you had no idea you were subject to, also comes with automatic criminal or civil penalties.

So whenever you are hiring independent contractors or freelance workers, make sure they are really independent contractors. This is one of those times to call your employment lawyer before any work starts. It’s also important to understand that every state his its own legal quirks on independent contractors, and that you need to know the law of the state where the employee is working.

It’s also time to change these laws to reflect how people work today.