Questions on California EDD Employment Audit

I have some questions pertaining to a California EDD Employment Audit. The auditors appear to take the position that any person paid 1099 who cannot be proven to be running a substantial real business is an employee. So the auditors will look for something like a web site run by the contractor, and if they don't find one, they tell you the person is defacto an employee.

Let's confine this discussion to people who do less than $2K of work per year (i.e., extremely de minimus work). To me calling such a person an employee by default is ridiculous. If a person works as a gardener or landscaper, they do not necessarily have a web site. Such a person might make only $50K of gross sales a year and be charging an individual client $2K/year. It's easy to believe such a small business does not have a website. The worker might be uneducated and unskilled in the use of computers. And it's really difficult to understand how such a person working $2K per year for another business is an "employee" of that business. This leads to the questions:

1) Is there any California law, or tax law cases decided in court, that will provide an exemption for cases where the worker did less than X hours, or Y gross dollars, of work per year? Having a solid number to work around as an exemption would really help when the auditor starts to nickel and dime. If there are other automatic exemptions, I would like to identify those.

2) Does the old "20 Question test" for contractors versus employees apply in California, or does California use a different test criteria for establishing if the person is an employee? It feels like a ridiculous waste of time running through the 20 question test for a gardener, answering questions like "did you supervise or direct his work?" But if this is required I just need to know that. It would be best to hope to find automatic exemptions, so time spent in the audit will be on cases that actually make a material difference.

The rules are actually more complicated than that - the IRS has a publication that deals with the issue. But sometimes it turns out that a person can be considered an employee for EDD purposes but a contractor for IRS purposes, for example.

How many hours per year a person works is largely irrelevant. The primary issue is the extent of control the "employer" has over the work done by the "employee."

Whether or not a person has a website per se is not determinative. It is evidence of the worker having his own, separate business. That is one indication that the person is a contractor rather than an employee. Many other factors are looked at as well.

No. Again, from a legal standpoint the number of hours is not normally relevant. What is relevant is control primarily.

If the person doesn't have a website, does he have business cards? Does he advertise? Does he work for other people? How does he get his business? Those things are more relevant.

The test under California law is largely the same, if not identical.

There is no automatic exemption, unless he has his own corporation or LLC and is an employee of that company. Then you contract with the company instead of him, and the problem pretty much goes away.