What are the consequences of misclassifying an independent contractor in San Diego? How does a recent California Supreme Court decision affect San Diego and Southern California businesses and employers?
Let’s start with the second question first. The California Supreme Court recently issued a game-changing decision which will affect most of the Independent Contractors in San Diego. The decision, known as “Dynamex“, establishes the legal presumption that all workers in California are employees unless the provider of work can literally prove otherwise. It places the burden of proof on the provider of work to prove the worker is “free from control and direction over performance” and “the work provided is outside of the core operations of the business or work provided by other employees” and “the worker is genuinely engaged in an independently established trade, occupation or business.”
The majority of businesses who have 1099 workers will not be able to meet these requirements. When the IRS, EDD, FTB or Labor Commissioner discovers a business has 1099 workers, the first question will be “can you provide immediate proof your 1099 worker the new tests?”
If not, the consequences of misclassifying an independent contractor in San Diego will be financially substantial. In many cases the penalties will threaten your business viability or ability to survive the financial consequences.
The first penalty is a California civil penalty for misclassification, usually $25,000 per incidence.
Next, your company will be responsible for the repayment of the back federal and state income taxes which you would have collected if the independent contractor was an employee. You will also have to pay all associated “uncollected” Workers Compensation, Unemployment, Medicare and Social Security taxes which would have been collected from any normal employee. The agency will be able to apply a look-back period of up to four years. The resulting amount owed for each misclassified independent contractor can quickly rise above $100,000 per person.
Next, the misclassified “employee” may file a lawsuit against you independently, or join with other formerly misclassified “employees” to file a class action lawsuit seeking substantial financial damages. The exposure in these lawsuits will include but is not limited to fair and full compensation for any benefits you would have provided under normal “employment” as well as compensation for vacation, unpaid overtime and other financial damages.
The consequences of misclassifying an independent contractor in San Diego can threaten the life of your business. Take action today to understand the new law and how it is being applied in San Diego. 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 to learn how to come into compliance with the new rules and to properly classify independent contractors and employees.
