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Who Is Considered An Employee?

Who Is Considered An Employee?

The classification of a working person as an employee would seem to be an easy decision, right?  If you hire a person and you pay wages to that person on a regular basis then the person is an employee.

If you didn’t technically “hire” him and you don’t actually provide his payroll, then he isn’t an employee.  Or is he?

You may intend for employment status to be determined by contract negotiations.  However, it is most often determined by a labor board (in the event of a complaint) or in a courtroom (in the event of an injury lawsuit).

The California Department of Industrial Relations, the Department of Labor and the IRS have much to say on the status of all types of labor and whether someone might be considered an employee, even if you didn’t hire them and even if you don’t pay them.  Let’s look at a few of these.


Is a Volunteer an Employee?

This might seem like a simple answer.  If someone is volunteering, they aren’t being paid, so they wouldn’t be considered an employee.  This is true, except when they ARE considered employees.

The key word when determining the employment status of a volunteer is intent.  What is the intent of the employer with regard to the volunteer, and what are the intentions with regard to the work being performed by the volunteer?


No. Non-employees intend to volunteer their services for public service, religious or humanitarian reasons without contemplating being paid.  These would include people volunteering after a disaster or even those volunteering regularly in a non-commercial operation such as a shelter.  Even employees of an organization can be considered volunteers, but only if they volunteer their services for the reasons stated above with (1) no expectation of compensation and (2) the duties they are volunteering for cannot be contemplated in the scope of their regular, paid duties.


Yes. Volunteers of commercial enterprises would be considered employees.  These would include volunteers at thrift stores, restaurants and offices that would be considered a commercial business.  Even with no expectation of pay, the California Industrial Welfare Commission considers these volunteers to be employees, and as such they are subject to labor laws and standards.


Is a Subcontractor an Employee?

A subcontractor relationship would seem to be straightforward enough.  As a contractor you are paying the subcontractor for a job done as part of your job, but you are not paying his employees, so they are not your employees.  Except sometimes they can be.

The Department of Labor has what they call an “economic realities test” that determines whether a subcontractor or contractor may be considered an employee.  It comes down to financial risk of the parties involved.


No.  If the subcontractor is licensed and properly insured, and you do not have the right to direct or control subcontractor employees, then the subcontractor and his employees are not your employees.  If you do not direct the wages or hours of the employees of the subcontractor, then you are not the employer.


Yes.  If the subcontractor you hired is required to be licensed but is not licensed, then he is considered your employee.  If a subcontractor is uninsured and his employee is injured on a job for you, that employee is considered your employee.  If you have the right to direct and control subcontractor employees, even if that right is not exercised, they are your employees.


Is an Independent Contractor an Employee?

A 1099 form would seem to be the perfect solution to the question of whether someone is an employee or not.  After all, you aren’t taking out payroll taxes or providing benefits.  The independent contractor wouldn’t be considered an employee, would he?


No. A business owner may hold an independent contractor responsible for reaching specific objectives, but if he does not control the way in which the independent contractor completes or accomplishes his duties, then the independent contractor is not an employee and is properly classified as an independent contractor.


Yes.  Does the business owner have control over where, when and how the independent contractor’s work is done? Is the business owner granted approval of who the independent contractor can hire and fire with regard to the job being performed?  Does the independent contractor receive the same amount of money for payment of services regardless of results?  Does the independent contractor receive payment based on time worked, rather than project results?  If you answered yes to any of these questions, your independent contractor may actually be considered an employee as far as the Department of Labor is concerned.


The best way to determine independent contractor status is by completing form SS-8 and submitting it to the IRS for a determination.  Please note a determination can take up to 6 months to receive.


This article is not meant to be a comprehensive means of determining employment status, but simply to make you aware that employment status may be determined differently than you intended.  Local, state and national labor departments and the IRS have their own ideas about employment status that do not take into consideration verbal agreements, handshake agreements, or even written contracts.

If you have any questions about employment status, contact your local labor board or a competent labor attorney.  For questions about employment status with regard to workers compensation insurance, contact Hayes Brokers at 1-800-869-8643.

featured image courtesy of realizedworth.com


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