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Employees vs. Contractors in Construction – Labor Designation

Construction is a labor intensive business. All companies in the construction industry should have a well-designed structure in place for handling their workforce. Some work may be performed by contractors instead of employees and there are strict rules and regulations regarding worker classification. Improper labor designation could lead to big problems. Here, our Fremont employment law attorney explains the key things business owners and companies in the construction industry need to know about the employee vs. independent contractor labor designation in California.

Employees Must be Properly Classified

As a starting point, all construction company owners and operators must understand that their workers need to be properly classified – either as an employee or independent contractor. A company that improperly classifies workers in California can face serious sanctions and criminal charges. Here is an overview of California’s employee and contractor designations:

  • Employee: An employee is an individual who performs duties dictated or controlled by others and is paid a regular wage or salary.  This would include all workers who do not have a CSLB license, or another qualified California professional license.
  • Contractor: A contractor is a CSLB licensed self-employed individual or worker from another company who provides services based on a written contractual agreement.

A benefit of using contractors instead of employees is that employers are not responsible for certain costs, including things like workers’ compensation insurance, and other benefits that may be offered to an employee, ie: paid sick leave, etc.

Know the Law: California’s ABC Test for Worker Classification

Our state has some of the most comprehensive, employee-friendly worker classification standards in the country. As explained by the California Labor and Workforce Development Agency, the state uses the “ABC test.” It was codified into law in 2019 by Assembly Bill 5. Here are the three key points that would designate a worker as a contractor, given that all three are met:

  1. The worker is free from the control and direction of the hiring entity (construction company) in connection to the performance of the work.
  2. The worker performs work that is outside the usual course of the construction company’s primary course of business.
  3. The worker must customarily engage in an independently established trade, occupation, or business of the same nature that they are doing for the construction company.

Most workers fail B. above.

Here is a simple example of how a construction company can hire an independent contractor. Imagine that your company needs a modest amount of plumbing work done for a project in the Bay Area. You hire a CSLB licensed self-employed plumber to complete that specific task with a written independent contractor agreement.  In most cases, that plumber can be hired as an independent contractor. He or she does not have to become an employee of your business.

We Help Construction Companies Navigate Labor Designation Regulations

We are a law firm that represents businesses and business owners in California. In doing so, we are experienced in working with construction companies. Our team assists clients to:

  • Ensure compliance (prevent claims): We help your construction company remain compliant with labor laws—thereby reducing the risk of costly legal claims. Our attorney provides thorough audits of your current labor practices, ensuring that each worker’s classification aligns with California state laws. We take a proactive approach, helping our clients prevent claims through proper worker classification practices.
  • Independent Contractor Agreements.  We draft Independent Contractor Agreements for our clients to use to hire licensed CSLB contractors from time-to-time.
  • Navigate complaints (defend claims): Should your company face claims of misclassification, our team is prepared to defend your practices. We offer expert legal defense that includes gathering necessary documentation, representing your interests in legal forums, and negotiating on your behalf. Our strategies are tailored to present a robust defense, demonstrating that your labor practices are compliant with current laws.

Contact Our California Business Law Attorney for Construction Companies

Lynnette Ariathurai is an experienced and solutions-focused advocate for employers, including companies in the construction industry navigating employee vs. contractor labor designation issues. Contact us today to arrange your confidential consultation. With an office in Fremont, we work with construction companies throughout the Bay Area.