Correct classification is critical
Cases involving companies like Dynamex have cast more light on widespread contractor misclassifications. This issue prompted California’s legislature to adopt the three-pronged test described by the California Supreme Court’s ruling in the Dynamex case.
First, the hiring entity must not have direct control over the worker concerning the performance of the work, either in the contract’s terms or in reality. There are many nuances and specific direction required for each situation, so it’d be best to employ an employment law attorney to help you decide on whether your contractors fall within this requirement.
Second, the contractor must perform duties that are outside of the business’ core services. For a typical company, this would include services like maintenance, technical support and payroll. For companies like Uber, whose business is “driving people,” hiring contractors to “drive people” would most likely not meet this requirement.
Third, contractors must also have an established practice where they offer numerous clients the same services performed for your company. For example, if I were contracted to do accounting for a company, this relationship would most likely fulfill this requirement since I have an established firm where I perform full-service accounting.
It’s important to remember that this article should not replace the expert counsel and advice of an employment law attorney (which I am not); I’m merely describing points to consider when engaging freelancers. As a rule, the IRS and your state law will assume that a contractor is an employee unless you’re able to demonstrate otherwise.