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California law tightens independent contractor requirements

The gig economy has exploded over the last decade. Many individuals have taken on second jobs in this sector to further support themselves and their families. The gig economy provides these individuals with the flexibility they need, but there are also major benefits to companies who utilize these workers. Since these workers have traditionally been classified as independent contractors, companies who hire them have been able to sidestep many of the costs that are associated with hiring an employee. These include health and workers' compensation insurance and Social Security and Medicare taxes. These savings can be quite significant.

However, a newly enacted California law is making it harder for businesses to classify workers as independent contractors. The law attempts to follow a Supreme Court ruling that found that independent contractors are oftentimes unfairly denied benefits and protections afforded to employees.

Therefore, under California law a worker may only be classified as an independent contractor under certain circumstances. Much of the focus is no the amount of control a business retains over a worker, but it also looks at a worker's ability to negotiate and set rates, the type of work being performed and whether the worker's occupation conforms to the company's regular business. Therefore, it may be hard for a web developer to provide work on an independent contract basis to a web development company. There are a number of exceptions that pertain to certain fields though, such as doctors and attorneys.

With the changing legal landscape, workers and employers alike need to make sure they understand and abide by the law. Businesses who run afoul of the new law can face extensive fines that can prove financially ruinous. With that in mind, before classifying an individual as an independent contractor, businesses should consider whether they truly are independent contractors. Likewise, workers who feel like they have been improperly classified should think about the possibility of pursuing a wage and hour claim.

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