Legal News & Updates

Keep up to date here

Distinguishing Volunteers, Interns, Independent Contractors and Employees

For any size business, it is important to understand the difference between a volunteer, independent contractor and employee. Businesses often try to cut corners by telling their "employees" that they're really independent contractors while still treating them as employees. Small businesses, in particular, often run into traps when they hire "volunteers" under the belief that they are providing education in exchange for labor. Below is some general information about the legal definitions of a volunteer, independent contractor and employee. The most important fact to remember is that what an employer and the subordinate individual agree upon is not sufficient to change the subordinate's legal status under the law. In other words, you cannot contract around these legal definitions.

WHAT IS A VOLUNTEER?

A volunteer is an "individual who performs hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation or receipt of compensation for services rendered." 29 Code of Federal Regulations ("CFR") §§ 553.101(a) and 553.104(a). The volunteer must offer his or her services "freely and without pressure or coercion, direct or implied from an employer." 29 CFR § 553.101(c). This means that a for-profit business cannot ask a student to "volunteer" to work for it.

A volunteer does not lose his/her status by getting paid, so long as it is without expectation and reliance. "Volunteers may be paid expenses, reasonable benefits, a nominal fee, or any combination thereof, for their service without losing their status as volunteers." 29 CFR § 553.106(a). This type of payment is sometimes referred to as a stipend. If that stipend becomes too significant, however, the volunteer's status can quickly shift to that of an employee.

YOU ARE NOT A VOLUNTEER IF:

An individual may not be considered a volunteer if the individual is "otherwise employed by the same public agency to perform the same type of services as those which the individual proposes to volunteer." 29 CFR § 553.101(d). For example, a math teacher may not volunteer to teach math at the school at which he is employed. However, that same math teacher may volunteer to coach volleyball after school.

Although these citations refer to the Code of Federal Regulations, California essentially applies these same factors. The key is whether the person intended to volunteer with no contemplation of pay. DLSE Opinion Letter 1988.10.27.

WHAT IS AN INTERN?

    Interns will be considered employees and must be paid at least minimum wage for all hours worked unless all the following can be established:
  1. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school.
  2. The training is for the benefit of the trainees.
  3. The trainees do not displace regular employees, but work under close observation.
  4. The employer that provides the training derives no immediate advantage from the activities of the trainees; and on occasions his operations may actually be impeded.
  5. The trainees are not necessarily entitled to a job at the completion of the training period.
  6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent training.
  7. DOL Wage and Hour Division Opinion Letter FLSA2004-5NA (May 17, 2004).

The key here is that an employer cannot simply "hire an intern" in lieu of an employee. Simply because a student or young professional is desperate for experience and willing to work for free, does not mean an employer can skirt employee compliance.

INDEPENDENT CONTRACTOR OR EMPLOYEE?

Deciding whether to hire an independent contractor or employee is not merely a business decision where an owner calculates the costs involved in each option. Rather, they are each legal titles, with their own legal descriptions and requirements. It is only a business decision to the extent that the owner can sometimes decide how much or how little control to have over his or her own business.

Every legal entity (IRS, Federal entities, California entities) has different requirements for distinguishing independent contractors from employees. For this reason, educated minds may disagree as to whether a particular individual is an employee or independent contractor. Ultimately, however, there are three main categories of factors to consider: behavioral control; financial control; and the relationship of the parties.

Behavioral Control

Behavioral control relates to how much control the owner has over the manner in which the hiree performs his or her tasks. Is the hiree told how to do something, or merely what to do? For example, if an owner offers training but does not require it, this is more indicative of an independent contractor relationship. Requiring training is a strong indicator of an employee relationship.

Similarly, the level of control an owner exercises has a positive correlation to the level of liability imposed on the owner. If a hiree pays for his or her own insurance, this: lessens the owner's liability; transfers greater responsibility to a hireer; and supports an independent contractor relationship. Licenses are also indicative of control and liability. In a situation in which the hiree requires a license (such as esthetician or contractor), the absence of a license indicates an employee relationship.

Financial Control

Financial control relates to whether a hiree has an opportunity for profit and loss and to what extent do they control it. An independent control should generally be one who: sets his or her own prices; gives hers or her own discounts and refunds, and is generally responsible for handling his or her own money. In contrast, if the owner is entirely responsible for price setting, marketing, and money-management, those employed by the owners are more likely to be employees.

Relationship of the Parties

This prong will primarily play a role for those instances where there is an independent contractor relationship that is questionable. It relates to the intent of the parties: what do the parties say they want. Some individuals would prefer to have the independent contractor relationship in order to have the freedoms that it generally affords. Again, this "want" must be supported by law and is not sufficient to overcome other factors which indicate an employee relationship. Other factors included under this prong are: the termination rights of the relationship; and what benefits the hiree is entitled to.

The discussion above is general and meant to provide you with a general understanding of these legal issues so that you know what to ask. Failing to properly classify your employees as employees, can seriously cost your business in fines and lawsuits. If you have any questions that relate to these matters, please do not hesitate to contact us to discuss further.

402 W. Broadway, Suite 800, San Diego, CA 92101