The labor market has been transforming over the last decade in the US. However, that change was meaningfully impacted and accelerated by the Covid-19 pandemic, related work-from-home orders, and thousands of workers who found themselves laid off at the start and throughout government-induced shutdowns and the pandemic.
From that time through today, millions of individuals have decided to make the change from employee to gig worker or independent contractor. In the United States, between 2017 and 2021, occasional independent workers grew by 59.78%, according to a study conducted by Statista (a multi-peer reviewed statistical data, research, and analysis company).
Companies that require outside workers to perform specific tasks or short-term projects often look to independent contractors for assistance. What is the difference between an employee and an independent contractor, and is an independent contractor the same as a gig worker?
Is there a difference between a “gig worker” and an independent contractor?
Today, independent contractors are commonly known as gig workers because of the rise of the gig economy. Often the two words are used interchangeably. The question arises: Is there a difference between a gig worker and an independent contractor?
The Internal Revenue Service (IRS) classified Gig workers as independent contractors. Still, in practice, freelancers who use digital platforms for gig work tend to have more straightforward business arrangements and less control over the contractual details of their work. The IRS defines a gig worker as an individual who earns income through certain activities, often using an app or website such as a digital platform. As defined by the IRS, an independent contractor might be a physician, attorney, accountant, contractor or subcontractor, or auctioneer engaged in an independent trade, business, or profession that provides services to the public. Furthermore, the IRS describes that independent contractors may or may not be considered employees, depending on their particular case circumstances.
Note: As a general rule, an individual is an independent contractor if the payor is only allowed to control or direct the results, not the way in which the work is to be performed.
CA Common Law Test vs. ABC Test
Legislation is changing at the state level, and in some situations, the distinctions between gig workers and independent contractors are being recognized. For example, California’s Assembly Bill 5 (AB-5) fundamentally altered distinguishing between gig workers and typical independent contractors, such as accountants, physicians, hairdressers, and real estate agents, who manage their own businesses.
Specifically, AB-5 allows gig workers to be reclassified as employees in certain instances, while in other cases, it provides exemptions, allowing an individual to keep their standing as an independent contractor.
California’s courts and regulatory agencies generally applied the common law principles and the “ABC Test” to determine independent contractor status. However, there have been recent significant transformations to independent contractor law over the past two years. The original bill (AB-5) has been substantially reformed to provide clarification and exemptions to several subcategories of independent contractors, freelancers, and gig workers in AB-1561, AB-1506, and AB-2257. Some examples of those now eligible for exemptions under these bills include copy editors, performers, landscape architects, recording artists, manicurists, translators, truckers, and more.
Distinctions Between Employee and Independent Contractors
The hiring entity you work for might be depriving you of benefits you are entitled to under federal and California law if it considers you an independent contractor instead of an employee despite the facts of your case saying otherwise.
The benefits for employees include:
- Protection under retaliation laws (e.g., in the case of unlawful termination or demotion or discrimination against the employee who has complained about discrimination or harassment.)
- Reimbursement for work-related expenses
- Entitlement to overtime pay
- Minimum wages
- Rest and meal breaks
- Workers’ Compensation
- Unemployment insurance
- State disability
A position as an independent contractor can be enticing as it comes with certain freedoms, like creating your schedule, building a comfortable work-life balance, and being “your own boss.” However, when interviewing as a potential independent contractor, it’s crucial to establish that you are truly independent and will be treated as such for the duration of the job. For example, you should have the freedom to arrive at the goal the business is asking for in the manner you see fit. Unfortunately, many of today’s employers post job listings that entail employee responsibilities masquerading as a job posting for an independent contractor to save on expenses (e.g., insurance), overall employee-related costs, and liability.
Workers might be mislabeled as independent contractors by employers for the employer’s benefit. By labeling a position as an “independent contractor,” the employer avoids providing and adhering to the benefits listed above and dozens of other rights and benefits available to California workers and the workforce across the US.
If independent contractors are treated as employees but denied benefits (mislabeling), or if you have questions about independent contractor rights, rights as an employee, and related laws, you should consult with an experienced California employment law attorney. The best step to take is to consult with our team now. Reach out for a confidential and free consultation here.
