United States: California Needs A New Category Of Workers — Dependent Contractors

Last Updated: September 9 2015
Article by Nancy Yaffe

Labor laws are not keeping pace with the new economy. Right now there are only two options for employers.

Option one is to hire employees, and comply with the myriad complicated wage-and-hour laws, including very strict rules about monitoring an employee's work hours. In California, an employer must ensure a non-exempt employee works no more than 8 hours per day (even if the employee wants to stay late one or two days and leave early another) or pay overtime. Any time over 8 hours in one day must be paid at an overtime rate that must be calculated to include extra non-discretionary pay (such as commissions, service charges, and shift premium pay). An employer must ensure meal breaks are taken (even if the employee prefers not to take them), and make sure they are taken before the end of the 5th hour of work. Any lack of proof of compliant meal breaks (typically punch records) requires the employer to pay an extra hour of "premium" pay. Both daily overtime and meal premium pay can blow up a business' labor costs and put a large dent in what are often already slim profit margins.

Option two is to retain workers as independent contractors and have them agree (preferably in writing), that they are contractors and not employees. Independent contractors are not entitled to overtime or meal premium pay. They also aren't covered by workers' compensation and don't get employee benefits (such as paid sick leave or employer-sponsored health care or unemployment benefits). But independent contractors have freedom. They can work hours as needed to achieve the scope of work agreed upon. They have the opportunity for profit (by working efficiently) or loss (by working less efficiently). And they can work for more than one employer and have a more fluid work/life balance.

The problem is that many jobs in the new economy do not fit neatly into either option. The new rideshare technology is a prime example, but there are many others (including many types of semi-professional services, such as movers, tech/HR consultants, fitness instructors, hair stylists, etc.). And with the DOL's new guidance the federal government is now joining the California trend in going after both businesses who engage contractors, as well as individuals who work as contractors. The goal? Some might say to protect workers. Others might say to ensure payroll tax revenue streams are intact. Whatever the goal, retaining contractors to run an integral part of your business is just plain risky.

So what we need is an option three – dependent contractors. A dependent contractor would be a worker who works exclusively (or semi-exclusively) for one business, but still retains the freedom to work flexible hours, to take a meal break when hungry, to accept or reject assignments, and to take time off when desired. A dependent contractor would still be self-employed, but could avoid the rigid lifestyle that regulations require employers to impose on employees, and could work at their own pace without feeling the pressure to perform in an outdated 8 hour workday / five day workweek model.

As the cases about rideshare technology work their way through our state agencies and court systems, expect to hear more about this idea of dependent contractors. Maybe the law will eventually catch up with the needs of businesses and the new generation of workers who want some freedom to redefine the work experience. One can only hope.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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