Adult entertainment star Stormy Daniels, who became a household name after The Wall Street Journal reported that she was paid $130,000 to keep quiet about her alleged sexual relationship with Donald Trump, wrote an op-ed piece for the Los Angeles Times, arguing that legislation should be passed to overturn last year’s Dynamex decision by the California Supreme Court.
That decision made it much more difficult for businesses to classify workers as independent contractors by adopting new worker-classification standards that presume that all workers are employees. An employer desiring to classify a worker as an independent contractor has the burden to prove:
* that 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;
* that the worker performs work that is outside the usual course of the hiring entity’s business; and
* that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Although this might seem like an unusual area of interest for someone in Daniel’s line of work, her concern is that under the Dynamex test, strippers are being reclassified as employees because the work they do is not “outside the usual course” of a strip club’s business.
Daniels explains that strippers have traditionally worked as independent contractors who set their own hours, allowing them to set their schedules around their other obligations (e.g., caring for children or attending school).
Businesses, of course, often prefer to characterize their workers as independent contractors rather than as employees, since independent contractors are responsible for their own taxes, including FICA, and are not subject to many of the laws protecting employees, such as wage and hour laws.
Daniels, however, asserts that “not all independent contractors are exploited and not all wish to be employees” and contends that legislation should be enacted to allow workers to continue working as independent contractors if they choose.
The laws relating to worker classification vary from state to state and may also differ depending on the purpose for which the worker is characterized (e.g. taxation or workers compensation). The Dynamex standard is unusual in its requirement that all three factors be met. In most jurisdictions, a multi-factor balancing test is used.
Generally speaking, if a person is under the direction and control of the employer, it is more likely that the person will be characterized as an employee. If a person performs the task for one employer rather than for many, this also strengthens the employment characterization. On the other hand, if the individual performs similar tasks for several different employers and functions independently, it is more probable that the individual will be characterized as an independent contractor.
When the employer provides the tools, equipment and a place to work, it is more likely that the person performing the task will be characterized as an employee, but if the individual provides his or her own tools, equipment and supplies, the argument that the worker is an independent contractor is reinforced.
The place where the work is performed, whether the person has his or her own business license, as well as other relevant factors, may also be considered when determining a worker’s status.
If an employer treats someone as an independent contractor and that person is recharacterized as an employee by a government agency, significant penalties may be imposed. Further, workers who believe they have been misclassified as independent contractors often file lawsuits against their employers.
If you believe you may have misclassified some of your workers, you should look into the IRS’s Voluntary Classification Settlement Program (VCSP), which offers partial relief from federal employment taxes for eligible taxpayers that agree to treat their workers (or a class of workers) as employees going forward.
Please let us know if you need assistance determining whether those who provide services for your business are to be treated as employees or independent contractors, if you need help drafting contracts for your independent contractors or employees, or if you are interested in the VCSP program.
Also, please feel free to contact us if you believe that your employer has misclassified you as an independent contractor.
Photo by Eric Nopanen on Unsplash
