For decades, many state and federal agencies have had it in for businesses that hire independent contractors rather than employees.
The business reasons for independent contractors are obvious: when you hire a worker whom you classify as an independent contractor,
you don’t pay unemployment taxes or workers’ comp premiums, or provide any employee benefits;
you don’t pay employer payroll taxes;
you are not subject to most federal and state labor laws that require a minimum wage, overtime, and the right to unionize; and
you don’t have to withhold any taxes from independent contractors’ compensation and pay them to the IRS.
The primary government objection to independent contractor status is the failure by contractors to pay their taxes. And the big reason for that failure to pay is the lack of prepaid taxes that the government enjoys from W-2 employees.
But millions of Americans want to work as independent contractors, and millions of businesses want to hire them. Indeed, due to the COVID-19 pandemic, more people than ever want the freedom that comes with being an independent contractor rather than an employee.
As a result, businesses have offered stiff resistance and made some progress against recent government efforts to make independent contractors W-2 employees.
The California Problem
Before getting into the California problem, know this:
Both the federal government and the states can create trouble for your classification of a worker as an independent contractor.
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