SANTA CRUZ COUNTY
PERSONNEL ADMINISTRATIVE MANUAL

PURPOSE:

To establish criteria for the designation of independent contractors to assure that contractual relationships are not improperly designated as employment relationships.

LEGAL BASIS:

Internal Revenue Code and Regulations
California Unemployment Insurance Code
California Franchise Tax Board Regulations
California Revenue and Taxation Code

POLICY:

The County of Santa Cruz shall establish independent contractor relationships only with those individuals who meet the legal definition of independent contractor. It is important to properly classify an individual providing services to the County since there are many different rules (e.g. public bidding, merit hiring) which apply when hiring an individual depending on whether the individual is an independent contractor. Mistakenly classifying an employee as an independent contractor can result in significant liability for the County including the imposition of fines and penalties against the County. 

There are 20 factors used by the IRS and EDD to determine whether an employer has enough control over an individual providing a service to the County such that an employment relationship is created. Utilize these general rules to evaluate whether an individual will be considered an employee or an independent contractor. These rules are intended only as a guide and the importance of each factor depends upon the individual circumstances. Questions regarding the application of these rule s to a given situation should be directed to County Counsel. 

If you answer "YES" to ALL of the first four questions, the individual is likely an independent contractor; "Yes" to ANY of questions 5 through 20 means the worker is probably an employee.

1. Profit or loss - Can the individual providing service make a profit or suffer a loss as a result of the work, aside from the money earned from the project? (This should involve real economic risk - not just the risk of not getting paid.)
   
   
2. Investment - Does the individual providing service have an investment in the equipment and facilities used to do the work? (The greater the investment, the more likely independent contractor status.)
   
   
3. Works for more than one firm - Does the individual providing service work for more than one company at a time? (This tends to indicate independent contractor status, but isn't conclusive since employees can also work for more than one employer.)
   
   
4. Services offered to the general public. Does the individual providing service offer services to the general public?
   
   
5. Instructions - Do you have the right to give the individual providing service instructions about when, where and how to work? (This shows control over the worker.)
   
   
6. Training - Do you train the individual providing service to do the job in a particular way? (Independent contractors are already trained.)
   
   
7. Integration - Are the individuals services so important to your business that they have become a necessary part of the business? (This may show that the individual is subject to your control.)
   
   
8. Services rendered personally - Must the individual provide the services personally as opposed to delegating tasks to someone else? (This indicates that your are interested in the methods employed, and not just the results.)
   
   
9. Hiring assistants - Do you hire, supervise and pay the worker's assistants? (Independent contractors hire and pay their own staff.)
   

10. Continuing relationship - Is there an ongoing relationship between the individual and the County? (A relationship can be considered ongoing if services are performed frequently, but irregularly.)
    
    
11. Work hours - Do you set the individual's hours? (Independent contractors are masters of their own time.)
    
    
12. Full-time work - Must the individual spend all of his/her time on your job? (Independent contractors choose when and where they will work.)
    
    
13. Work done on premises - Must the individual work on County premises, or does the County control the route or location where the work must be performed? (Answering "no" doesn't by itself establish independent contractor status.)
    
    
14. Sequence - Do you have the right to determine the order in which services are performed? (This shows control over the individual.)
    
    
15. Reports - Must the individual give you reports accounting for his/her actions? (This may show lack of independence.)
    
    
16. Pay schedules - Do you pay the individual by the hour, week or month? (Independent contractors are generally paid by the job or on commission, although by industry practice, some are paid by the hour.)
    
    
17. Expenses - Do you pay the individual's business or travel costs? (This tends to show some control.)
    
    
18. Tools and materials - Do you provide the individual with equipment, tools or materials? (Independent contractors generally supply the materials for the job and use their own tools and equipment.)
    
19. Right to fire - Can you fire the individual? (An independent contractor can't be fired without subjecting you to the risk of breach of contract lawsuit.)
    
    
20. Individual's right to quit - Can the worker quit at any time, without incurring liability? (An independent contractor has a legal obligation to complete the contract.)