San Diego Attorneys for Employers and the Business Community
How do you classify those who work for your business or company, and what is the difference between an “independent contractor” and an “employee?” This decision has become quite complex and the cost of this decision will have an immediate and long term impact on your business. The classification of an employee as an “independent contractor” relieves an employer of many genuine costs associated with payroll taxes, benefits, and FICA matching. However, recent developments here in California present a challenge to area employers.
California tax agencies such as the Employment Development Department (EDD) and the Franchise Tax Board (FTB) have begun aggressively reviewing and auditing employers in search of misclassified independent contractors. The California Department of Industrial Relations (DIR) recently issued a warning to California employers regarding recent legislation that creates civil penalties for misclassification of workers as independent contractors. Violations of the law expose California and San Diego employers to penalties that range between $5,000 and $25,000 per violation.
The Department of Industrial Relations is concerned as the misclassification of a worker as an independent contractor relieves employers from observing California’s minimum wage and overtime protection laws. There are workers’ compensation implications for each party as well, in addition to issues related to unemployment insurance and other employment related protections. The Department has estimated that employee misclassification has resulted in a loss of $7 billion annually in payroll tax revenues, in addition to the shift of costs from “employment related protections” to “public safety” services.
California EDD Tests for Independent Contractor
California’s EDD has recently published a 7 page guide that asks several questions of business owners and California employers regarding a worker’s status as an independent contractor. Several of the questions may appear obvious to experienced employers, but the State is focused on tightening the interpretation of existing laws and the development of new tests based upon a recent decision by the US Supreme Court. Questions on the guide include (but are not limited to):
- Can the worker quit or be discharged (fired) at any time?
- Is the work being performed part of your regular business?
- Does the worker have a separately established business?
- Is the worker free to make business decisions which affect his or her ability to profit from the work?
- Does the individual have a substantial investment in their job which would subject him or her to a financial risk of loss?
- Do you have employees who do the same type of work?
- Is the work considered unskilled or semi-skilled labor?
- Do you provide training for the worker?
These questions may seem easy on the surface, but they are actually quite legally charged and there is substantial room for the State to make its own determination despite a business owner’s protestations to the contrary.
Protect Yourself as an Employer Against Substantial Litigation, Civil Penalties and Tax Assessments
The experienced employer and business attorneys at the Watkins Firm have guided California and San Diego area employers for decades. We provide employment contracts, policy and procedure manuals and general counsel to our business clients. We have defended employers and corporate managers in employment related litigation and lawsuits. If you are concerned about recent employee classification developments, wage and hour issues or potential lawsuits for retaliation, discrimination or other employment related issues we invite you to contact us or call for a free and substantive consultation at 858-535-1511.