Employee or Contractor? You’d Better Review Law

You hire a gardener to trim the beautiful oak tree in your well-manicured front yard. Seems like a simple, everyday transaction. But it could be the beginning of a complicated legal nightmare.

Is the gardener your employee or an independent contractor? And what difference does it make?

It could make a lot of difference, affecting your rights in a personal injury lawsuit if the gardener falls and breaks a leg, or your tax liability if the gardener claims that he was an employee and you should have been paying payroll taxes.

An employee injured during the “course and scope” of his employment is generally limited to workers’ compensation benefits. In the same situation, an independent contractor can sue the firm or person that hired him and receive an unlimited award, including punitive damages.

On the other hand, the workers’ compensation benefits are automatic, without regard to fault, and the damage award is dependent on convincing a jury that the firm was negligent.

There are other significant differences. An employee who is terminated has the right to collect unemployment insurance; an independent contractor does not.

It is not always easy or predictable to say whether a particular person is an employee or an independent contractor.

The California Labor Code defines employees as “every person in the service of an employer under any contract of hire.” An “independent contractor,” on the other hand, is one “who renders service for a specified recompense for a specific result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.”

All that legalese aside, courts look to several factors in deciding whether someone is an employee or an independent contractor: the right of control (independent contractors control the way in which they do the work and are responsible to the employer only for the final product), tools and materials (independent contractors usually provide their own tools) and distinct occupation (independent contractors are more common with work that requires a special skill).

There are other factors: what the parties thought, the method of payment, whether the person works for others. But when you hire a gardener, or a nanny, you probably don’t spend much time worrying about these details.

One way to reduce the risk of liability is to make sure you have adequate insurance, both workers’ compensation and public liability insurance that covers a situation when an independent contractor, or even a visitor, is injured on your premises. And if you do hire a gardener to trim your tree, and he hires others to work for him, you should confirm that he has workers’ compensation insurance, as well.

There are also serious tax consequences that you should consider. If the person working for you is an employee, you are required to pay Social Security and Medicare taxes amounting to 7.65%. And don’t forget all the forms you should complete. If you pay a domestic worker, for example, more than $50 a quarter, the IRS requires you to file a 942 form quarterly and 940, W-3 and W-5 forms annually.

Of course, you can always argue that the gardener or nanny is an independent contractor. That argument might be more convincing with a gardener than with a live-in nanny or housekeeper under your constant direction.

There are no doubt millions of housekeepers paid as independent contractors, without any withholding or reporting of any kind. That may seem agreeable to each party on the face of it, but when a disgruntled former employee shows up at the unemployment line or the offices of the IRS, the legal niceties will seem much more important.

Klein and Brown cannot answer mail personally but will respond in this column to questions of general interest about law. Do not telephone. Write to Jeffrey S. Klein, The Times, 9211 Oakdale Ave. , Chatsworth, Calif. 91311.