Do you have legal exposure for misclassifying an independent contractor which should be an employee? Recent changes based upon a US Supreme Court Decision have led to aggressive tactics on the part of the IRS and several California agencies. Audits are being conducted to evaluate the misclassification of workers as independent contractors. When an employer is found to be out of compliance, the costs in terms of back wages, overtime, benefits, FICA and payroll taxes, unemployment and workers compensation as well as penalties and interest can threaten the financial strength of your business, and in some cases the actual survival of your company.
What changed? The Supreme Court decision extended the definition of employee to encompass the financial relationship between the parties. If your “independent contractor” is reliant upon your company for the majority of their income (even 70%) you are at substantial risk. San Diego area employers must consider the nature of the financial relationship, as well as the independent contractor’s ability to affect profit or loss on a job. Further, if the independent contractor consistently works on any essential aspect of your business you may very well be misclassifying an independent contractor which should be an employee.
The danger is real, and the exposure for many employers is significant. Agencies like the EDD and FTB aren’t just looking for companies with hundreds of employees. There is a tremendous opportunity to recover substantial amounts for the California Treasury by ordering the reclassification of your independent contractors as employees.
In the past, these relationships were governed by factors such as the control the provider had over the schedule of the independent contractor and the quality of their work. Issues such as the provision of tools or technology played a significant role. Today, the law is looking at the actual relationship between the parties, including the permanence of that relationship. Government agencies are investigating the investments made by both parties into their own separate business entities, as well as the skill set required to accomplish contracted work. The lower the skill level, the less likely that the classification of “independent contractor” will hold up.
Protect yourself. Misclassifying an independent contractor which should be an employee can very well cost you your business and monetarily wipe you out. The proven San Diego corporate attorneys at the Watkins Firm understand the realities of business, and the significant economic difference between and independent contractor or employee. However, we also understand the implications of new laws, and the genuine and substantial financial exposure California employers now face. We are able to help you and your company to avoid litigation, reduce the costs of coming into compliance and provide valuable counsel and insight into your strategies, policies and procedures.
If you use independent contractors in any area of your business it is important to have the Watkins Firm to review the actual relationship and your potential exposure. Misclassifying an independent contractor which should be an employee can cost you a substantial amount of money, and often the business itself. Protect yourself and your company. We invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
