The Borello test is a legal standard used in California to determine the employment status of workers for purposes of wage and hour laws. It derives its name from the landmark California Supreme Court case, S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989).
The Borello test assesses whether an individual should be classified as an employee or an independent contractor by examining various factors. These factors focus on the level of control exercised by the hiring entity over the worker and the overall nature of the working relationship. Although no single factor is determinative, the primary consideration is the hiring entity's control over the means and manner of work performance.
The key factors evaluated under the Borello test include:
1. Control: The degree of control exerted by the hiring entity over the worker's work, including the right to control how the work is performed.
2. Opportunity for profit or loss: Whether the worker has the possibility of making a profit or incurring a loss based on their own managerial skill and initiative.
3. Integration into the hiring entity's business: The extent to which the worker's services are integral to the hiring entity's core business operations.
4. Investment in equipment or materials: Whether the worker has made significant investments in tools, equipment, or facilities necessary to perform the job.
5. Specialized skills: The level of skill required to perform the work and whether the worker possesses specialized skills or knowledge.
6. Permanence of the working relationship: The duration of the working relationship and whether it is for a defined period or ongoing.
7. Control over hiring and termination: The hiring entity's authority to hire and fire workers or control the selection of workers.
8. Control over working hours and location: The degree of control the hiring entity has over the worker's work schedule and the ability to work from any location.
Courts and government agencies in California consider the totality of the circumstances and weigh these factors when determining a worker's classification. It is important to note that misclassifying a worker as an independent contractor when they should be classified as an employee can lead to significant legal consequences, including liability for unpaid wages, taxes, and other employment benefits.
It is advisable to consult with legal professionals familiar with California law to understand the specific application of the Borello test in your situation, as laws and interpretations may evolve over time.
I'm not an attorney, but I can share some general insights regarding your employment law question:
Role of Contractors: Contractors typically provide ancillary services to a business rather than core functions.
Obtaining an EIN: Contractors can obtain a free Employer Identification Number (EIN) for issuing a 1099 form through the IRS website: Get an EIN.
Using Social Security Numbers: Issuing a 1099 using an individual's Social Security number may raise compliance concerns.
Assessing Contractor Engagement:
- Multiple Clients: Verify if the contractor is working with other businesses.
- Exclusive Services: If the contractor exclusively serves your company, this could be a potential red flag.
Implications for Government Benefits: Situations where contractors are misclassified can lead to complications when they apply for government benefits, such as unemployment benefits.
AB5 Compliance: Under California's AB5 law, it's more common for contractors to not meet the criteria than to qualify, so careful evaluation is essential.
For specific legal advice, please consult a qualified attorney.