The difference between independent contractors and employees is sometimes difficult to distinguish when it comes to workers’ compensation insurance.

California courts and state agencies typically use a number of tests to determine whether an individual is an employee or an independent contractor. A crucial factor in determining employment status is the employer’s right to direct and control the work being performed. If you have the right to control the manner and means of the work performed, the courts have routinely decided that the “independent contractor” is actually your “employee”.

There are many other considerations, but the answer to any one factor does not necessarily determine status.  Among them, whether the person performing the service:

• Has the right to terminate the relationship at will.
• Is engaged in a distinct occupation or business.
• Has voluntarily chosen the burdens and benefits of self-employment.
• Has the skill required in the particular occupation.
• Supplies the instrumentalities, tools, the work location, and carries the license or certificate required to perform the work.
• Has the right to hire and terminate others.
• Is paid by the time worked, or by piece rate.
• Works under the direction of the employer or by a specialist without supervision.

Other factors include:

• Whether the services are a part of the regular business of the employer.
• Whether the parties believe that they are creating the relationship of employer/employee or employer/independent contractor.

If there are questions, the Labor Code assumes a worker is an employee for workers’ compensation purposes.  The burden of proof to support the independent contractor status of a worker falls on the employer. 

The Labor Code also requires that any subcontractor who does not have an active valid contractor’s license be treated as an employee, not an independent contractor.  However, even though a worker may have a valid license, the worker may still be an employee depending on the factors as discussed above.

A good rule of thumb: as an employer, always protect yourself.

• If certain jobs require a license, request a copy for your records.
• Obtain original Certificates of Workers’ Compensation Insurance addressed to you from all contractors and subcontractors who have employees or who, in turn, subcontract any portion of their work.

If proper documentation is not maintained and presented to our auditors, we are obligated to charge premium for any liability that may exist under your workers’ compensation insurance policy.

If you are unsure of your worker’s status as either an independent contractor or your employee, please contact your local State Fund office and speak to a representative.

 Also see: http://www.statefundca.com/pdf/e10210.pdf and http://www.statefundca.com/print/print.asp?ref=/CustomerSupport/Audit.asp#Contractor

Source: http://www.statefundca.com/news/FeatureArticles2010/070210-ContractorVsEE.asp

Workers’ compensation premium is assessed on gross wages and other compensation as defined by law. The table below identifies whether or not a specific form of compensation is considered as payroll for premium calculation.

*Overtime Excess (OTX): Total overtime compensation paid over and above the regular rate of pay, including increased pay for weekends, holidays, or hours worked beyond the standard number for the day or week.

Source: http://www.statefundca.com/employers/Components/2010Issue1.asp