Prop 22 and the Independent Contractor Classification: What Business Owners Need to Understand

The "App-Based Drivers as Contractors and Labor Policies Initiative," or Prop 22, passed in November 2020 in California and changed the classification of app-based transportation and delivery drivers from employees to independent contractors, thus companies like Uber and Lyft are not obliged to offer traditional employee benefits such as minimum wage, overtime pay, and unemployment insurance.As a business owner, it's important to understand the independent contractor classification under Prop 22. In this blog post, we will discuss the independent contractor classification under Prop 22 and what business owners need to understand about it.

First, let's talk about the independent contractor classification under Prop 22. Under Prop 22, app-based drivers are classified as independent contractors, rather than employees. This means that these drivers are not entitled to the same benefits and protections as employees, such as minimum wage, overtime pay, and workers' compensation.

However, it's important to note that the independent contractor classification under Prop 22 is not determined by the company, but by the IRS's common-law test. The IRS uses a common-law test to determine whether a worker is an independent contractor or an employee. The test considers factors such as control over the work, the degree of independence, and the nature of the relationship between the worker and the employer.

It's also important to understand the impact of Prop 22 on the independent contractor classification. Prop 22 provides a new definition of an independent contractor and it's not the same as the one used by the IRS. Prop 22 defines an independent contractor as someone who is free from the control and direction of the hiring entity in connection with the performance of the work, performs work that is outside the usual course of the hiring entity's business, and is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. This definition is quite different from the one used by the IRS and it's important for business owners to understand how it differs.

Another important aspect to consider is the legal implications of misclassifying workers as independent contractors under Prop 22. Misclassifying employees as independent contractors can lead to legal issues and fines for companies. Business owners need to ensure that they are correctly classifying their workers as employees or independent contractors, based on the criteria set out in Prop 22, to avoid any legal issues.

In conclusion, understanding the independent contractor classification under Prop 22 is crucial for business owners. Business owners should stay informed about the IRS's common-law test and the definition of independent contractor under Prop 22, to ensure that they are correctly classifying their workers and avoiding legal issues. Compliance with Prop 22 is not just a legal requirement, but it also has a positive impact on the reputation of the company and the satisfaction of the drivers. As a business owner, it's important to understand the independent contractor classification under Prop 22 and stay informed about any changes or updates to the law.