As an RCFE owner, you have a lot of irons in the fire at all times. It doesn’t leave a lot of leftover availability to worry about things like the status of your workforce in the eyes of the state — but you need to make time. If you’re 1099-ing your caregivers, you’ll probably run into a problem down the road.
While maintaining a “staff” of independent contractors would certainly simplify things from a benefits and taxation perspective, it’s not a model most RCFEs can use. To help you understand why you almost definitely need to have your caregivers on payroll, let’s look at California law.
1099s vs. W-2s
In California (and all other states), businesses can hire people to help with their business in one of two ways. They can be independent contractors or employees.
Independent contractors work for themselves, not your business. They’re basically self-employed freelancers. While they might have a contract with your company for a specific kind of work, it’s their responsibility to find consistent work, either from your business or elsewhere. They also need to pay their share of Medicare and Social Security taxes on their own.
Businesses give independent contractors a 1099 at the end of the year.
Employees work directly for your company. You get to determine when and how they work and you pay them via payroll. As part of your payroll process, you deduct what they owe Medicare and Social Security taxes. You also pay a portion toward those taxes as their employer.
Additionally, you need to provide workers’ compensation for your employees.
Businesses give employees a W-2 at the end of the year.
What California Law Says About Independent Contractors
Obviously, independent contractors seem simpler from a business’s perspective. But most RCFE staff can’t qualify as independent contractors because of the nature of their work.
This became especially true after Governor Newsom signed Assembly Bill (AB) 5 into effect in 2019. Per AB 5, the onus is on businesses to prove that someone should truly be an independent contractor.
To do that, you use what the state calls the ABC test. In order for someone to be an independent contractor, they need to:
- Be free from control or direction from their hiring entity in regards to how they do their work.
- Perform work that’s outside of your normal business operations.
- Have their own trade, occupation, or business in the type of work they’re performing for you.
So if you hire someone to do something specific, like painting your RCFE, they could be considered an independent contractor because:
- You won’t necessarily tell them how to do the painting.
- Your RCFE doesn’t offer painting services.
- They have their own painting business or an established trade in painting.
But if you hire someone to provide care, they almost definitely need to be classified as an employee because you will likely:
- Tell them how to provide care and when to do it (e.g., you’ll probably set a work schedule for them).
- Have them do work that’s part of your core services as an RCFE.
- Be their sole source of work, i.e., they won’t have their own business or projects outside your RCFE.
And here’s the thing: if you fail even one of the above tests, the individual still needs to get a W-2. If you hire a caregiver who does have their own caregiving business but you set a work schedule for them, you still fail the ABC test. And that means they’re technically an employee of your RCFE.
If you want help figuring out if you should classify someone as an independent contractor or an employee, you can use this Employment Determination Guide from the state.
Still have questions? Our team of RCFE specialists can help you determine the right status for your workers. And if you determine that they should be employees, we can help you navigate the to-dos, like getting workers’ comp in place. Contact us for any help you need.