According to data from the US Occupational Safety and Health Administration (OSHA), approximately 465 Californians lose their lives in construction accidents every year.
In a state where workers’ compensation is mandatory for all businesses, it’s important for employers to properly classify their staff, either as independent contractors or employees. Improper classification can lead to big problems down the road. Find out more in this blog.
The Difference Between an Employee and a Contractor
All construction company owners in California must know the importance of correctly classifying their workers. Failure to do so can lead to sanctions and criminal charges.
“Construction companies in California must devise and adopt a well-defined structure to handle their workforce, designating staff as either employees or contractors,” says workers’ compensation attorney Ryan Vego of Glauber Berenson Vego LLP.
An employee is any individual whose duties in the company are dictated and controlled by others and who is paid a regular wage or salary. This person must not have a CSLB license or any other qualified California professional license.
On the other hand, a contractor is a CSLB-licensed self-employed individual from another company whose services are dictated by a written contractual agreement.
Differentiating between these two classifications is important because contractors are not eligible for certain employee benefits like workers’ compensation.
Are You Hiring an Employee or a Contractor?
California adopts the ABC test to designate workers as contractors, as explained by the California Labor and Workers Development Agency. Here are the conditions that staff must meet to be selected as contractors under the ABC test, which was codified into law in 2019 by Assembly Bill 5:
- A- The worker’s performance is independent of the construction company’s control
- B- The worker’s responsibilities are outside the scope of the construction company’s primary course of business
- C- This worker must engage in an independently established trade similar to what they’re doing for the construction company.
If the worker fulfills the three conditions above, they are contractors, which means they are not eligible for the same benefits as regular employees.
The Benefits of Working With Contractors in the Construction Industry
Here are the top reasons why construction companies in California opt to work with contractors:
- Flexibility: Since construction projects often fluctuate in demand, these companies work with contractors because they are more flexible than employees.
- Cost efficiency: By working with contractors instead of employees, construction companies don’t have to pay payroll taxes, unemployment insurance, workers’ compensation, and benefits like health insurance.
- Specialization: A contractor only brings specialized skills for a specific part of the project.
- Reduced Liability: Working with contractors reduces the construction company’s liability in case of workplace accidents.
- Testing potential employees: Sometimes, construction companies use contractual roles to test out potential employees before formally hiring them.
Conclusion
It is important for these entities to correctly classify their workers to avoid attracting criminal charges and sanctions.
California uses the ABC rule to determine whether a worker is a contractor or an employee. By working with the former, construction companies can reduce costs associated with unemployment benefits. They can also mitigate liability in case of workplace accidents. Finally, these entities can use contracts to test potential workers before employment.