EDD “Safe Harbor” Rules for Independent Contractors

In our last blog post we discussed what happens if the EDD reclassifies your independent contractors as employees. In this post, we’ll discuss how to ensure that that doesn’t happen if you have domestic workers. These are considered the EDD “safe harbor” rules for employers.

According to the California Unemployment Insurance Code, section 687.2, an employment agency shall not be considered the employer of a domestic worker if all the following factors exist:

(a) There is a signed contract or agreement between the employment agency and the domestic worker that contains, at a minimum, provisions that specify all of the following:

(1) That the employment agency shall assist the domestic worker in securing work.

(2) How the employment agency’s referral fee shall be paid.

(3) That the domestic worker is free to sign an agreement with other employment agencies and to perform domestic work for persons not referred by the employment agency.

(b) The domestic worker informs the employment agency of any restrictions on hours, location, conditions, or type of work he or she will accept and the domestic worker is free to select or reject any work opportunity procured, offered, referred, or provided by the employment agency.

(c) The domestic worker is free to renegotiate with the person hiring him or her the amount proposed to be paid for the work.

(d) The domestic worker does not receive any training from the employment agency with respect to the performance of domestic work.  However, an employment agency may provide a voluntary orientation session in which the relationship between the employment agency and the domestic worker, including the employment agency’s administrative and operating procedures, and the provisions of the contract or agreement between the employment agency and the domestic worker are explained.

(e) The domestic worker performs domestic work without any direction, control, or supervision exercised by the employment agency with respect to the manner and means of performing the domestic work.

The following actions exercised by an employment agency shall not be considered to be the exercise of direction, control, or supervision:

(1) Informing the domestic worker about the services to be provided and the conditions of work specified by the person seeking to hire a domestic worker.

(2) Contacting the person who has hired the domestic worker to determine whether that person is satisfied with the agency’s referral service.  This contact shall not be used to identify improvements needed in a worker’s performance and to then discipline or train the worker regarding the performance of domestic work.

(3) Informing the domestic worker of the time during which new referrals are available.

(4) Requesting the domestic worker to inform the employment agency if the domestic worker is unable to perform the work accepted.

(f) The employment agency does not provide tools, supplies, or equipment necessary to perform the domestic work.

(g) The domestic worker is not obligated to pay the employment agency’s referral fee, and the employment agency is not obligated to pay the domestic worker if the person for whom the services were performed fails or refuses to pay for the domestic work.

(h) Payments for domestic services are made directly to either the domestic worker or to the employment agency.  Payments made directly to the employment agency shall be deposited into a trust account until payment can be made to the domestic worker.  Payments made to the domestic worker by the employment agency shall not be paid from any of the employment agency’s business accounts.

(i) The relationship between a domestic worker and the person for whom the domestic worker performs services may only be terminated by either of those parties and not by the employment agency that referred the domestic worker.  However, an employment agency may decline to make additional referrals to a particular domestic worker, and the domestic worker may decline to accept a particular referral.

If you are a California employment agency seeking to ensure that your domestic workers are classified by the EDD as Independent Contractors, it is imperative that you implement all the factors listed above. If you need guidance on maintaining independent contractor status for your domestic workers, we can help. Contact Disparte Tax Law for a free consultation today.