Hiring freezes and layoffs are not the only way to cut costs.  Cutting hours of your employees and making them an independent contractor may not only save you money but allow your personnel to retain a stream of income.  WARNING: A common mistake made by employers or any business owners is to consider someone as an independent contractor when in reality they are legally considered an employee.  California, like the IRS, has a nice list of factors in order to determine this status.  See California Department of Industrial Relation’s faq.

Why does this all matter?  Well, whether or not they are employees or independent contractors determines what labor code statutes apply including tax issues, overtime, breaks, and most importantly–LIABILITY.  If you do plan on making some of these changes in your staff, do not make the mistake of getting these arrangements in writing with a working knowledge of what your rights and liabilities are with these changes.

Keep in mind, due to the economy, more and more employees are asking about payroll issues, especially overtime.  A whole other analysis needs to be done regarding whether your employees are exempt or non-exempt employees.

Also keep in mind that the IRS has announced that it will start auditing randomly select employers who are paying “contractors” who are actually employees.