Protecting California and San Diego Business and Employers
The liabilities for misclassifying independent contractors can threaten the viability of most California businesses. This liability exists regardless of whether employees have been mistakenly or intentionally misclassified. What is the financial risk in this equation for California and San Diego businesses?
Civil Penalties to the State of California for Misclassification
The misclassification of employees as independent contractor exposes the alleged employer to a civil penalty of $5,000 to $25,000 for each violation. The law also prohibits companies from charging fees to or making deductions from compensation paid to misclassified workers.
Unpaid Wages, Overtime, Employee Expenses and Other Employee Payments, as well as Unpaid Payroll and Unemployment Taxes
Companies who have been found to have misclassified independent contractors are exposed to substantial financial liabilities, including but not limited to:
- Unpaid Federal, State and Local Income Taxes
- FICA (Social Security) and Medicare Contributions
- Unpaid Minimum Wages and Overtime Wages
- Unpaid Work Related Expenses
- Unpaid Sick and Vacation Pay
- Unpaid Workers’ Compensation Premiums
ERISA Employee Benefits
Liabilities arise from misclassified independent contractors, who (as employees) would have been entitled to coverage under ERISA employee benefit plans that have not been provided group health, disability and life insurance coverage, as well as anticipated matching contributions to retirement plans such as a 401(k), pension or profit-sharing plan.
Affordable Care Act (ACA)
The Affordable Care Act creates another potential liability for businesses who misclassify independent contractors. For example, if the business in question has fewer than 50 employees, but the addition of the number of misclassified independent contractors exceeds that number after they are reclassified by the IRS or a California agency, the ACA would require that business to provide qualifying medical coverage to “all” of its employees. This determination can also affect the determination that the business is in fact a “large employer” who is subject to the excise tax for specific workers who receive subsidized health insurance coverage through “Cover California” or another state or federal exchange.
Labor Contractors and Staffing Companies
California has recently enacted a law that creates financial liability for businesses that utilize labor contractors and temporary staffing companies. Your business shares all civil responsibility and liability with the labor provider for proper classification, payment of wages, provision of workers’ compensation coverage and other employment related exposures. Your business has a fiscal and legal responsibility to monitor labor providers to ensure that they understand and implement appropriate compensation programs for independent contractors.
Examples of California Employers Who have Paid Substantial Penalties for Misclassification
Recently, the California Labor Commissioner’s Division of Labor Standards Enforcement (DLSE) ordered a logistics company to make a $2.2 million payment to cover back wages, attorneys’ fees and interest for allegedly misclassifying seven short-haul drivers. The same office assessed $1.5 million to two janitorial businesses for allegedly misclassifying 52 workers.
Contact Experienced California Employer Defense and Litigation Attorneys
The Watkins Firm has helped California and San Diego employers to develop and implement employment policies that are in full compliance with Federal, State and local laws and regulations for decades. We also represent and defend business clients and employers in litigation associated with wage and hour issues, as well as discrimination, retaliation and harassment related lawsuits. Come into compliance and protect yourself and your company from civil penalties and financial liabilities associated with employment misclassification. We invite you to contact us or call 858-535-1511 for a complimentary and substantive consultation.