OUR FOCUS: Employment Status
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The misclassification of employees as independent contractors is harmful and unfair to workers. Classifying workers as independent contractors instead of employees is tricky, subject to changing rules and interpretations, and can carry significant legal implications for the employer, including taxes, protected leave, overtime pay, benefits, and others.
In addition to the above, the misclassification of workers as exempt instead of non-exempt can also have legal implications for the employer when it comes to overtime, minimum wages, rest breaks and meal breaks.
Employment Status Meaning
An employment status refers to the rights and protections that employees are entitled to at work. The employment status determines the responsibilities that an employer owes to the employee.
Employees vs Independent Contractors
The California Supreme Court has implemented a test that is straightforward and essentially assigns workers employee status and then charges the employer with the task of proving that that worker is actually an independent contractor.
The California ABC Employment Status Test assumes that a person is an employee unless the employer can actually show that:
(A) 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; and
(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and
(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
All three of these requirements need to be met in order to determine that a worker is an independent contractor instead of an employee.
This distinction is important because when a worker is classified as an employee, the employer becomes responsible for paying Social Security, payroll taxes, unemployment insurance taxes and state employment taxes; providing workers’ compensation insurance; and complying with the state and federal statutes governing wages, hours, and working conditions of employees.
In contrast, independent contractors work without many of these protections that we often take for granted in labor and employment law.
Exempt vs Non-Exempt Employees
California labor laws require most employers to follow certain rules—like paying overtime, tracking hours, or providing rest breaks. Some types of jobs, however, are exempt from these requirements.
An exempt employee is someone who is not subject to one or more sets of wage and hour laws, such as overtime, minimum wage, and rest break requirements (but not meal break requirements).
Under California law, a worker is exempt under these requirements:
- Minimum Salary - they must be paid a salary that is at lease twice the state full-time minimum wage
- White Collar Duties - primary duties must be administrative, executive or professional in nature
- Independent Judgment - job duties must utilize independent discretion and judgment
Non-exempt employees, on the other hand, have rights with regards to wages, overtime and rest breaks. California state law is more favorable to non-exempt employees:
- Minimum Wage - As of January 1, 2022, California law requires nonexempt employees that work for an employer with 25 or fewer employees to be paid a minimum of $14.00 per hour. Employees that work for an employer with more than 25 employees are entitled to be paid $15.00 per hour. In addition, some cities and counties have established a minimum wage higher than the statewide minimum wage.
- Overtime - California law requires employers to pay between one and half and twice their regularly hourly rate of pay depending on the number of hours worked in excess of the workday, workweek, or on the seventh consecutive day of work.
- Meal Break - Most employees in California (including most exempt employees) are entitled to an unpaid, 30-minute meal break if they work more than 5 hours in a day. A second meal break is required if employees work more than 10 hours in a day.
- Rest Break - Nonexempt employees in California are also entitled to take a paid 10-minute rest period during the middle of each 4-hour work period.
When employers fail to provide an employee a meal or rest break, they are required to pay the employee an extra one hour of pay at the employee’s regular hourly rate. The employee may only earn one extra hour per workday for their employer’s failure to provide them with missed meal or rest breaks.