How does a San Diego employer know if a worker is an independent contractor or an employee in today’s ever changing laws and regulations? The US Department of Labor (DOL) and California’s Labor & Workforce Development Agency (LWDA) as well as the IRS, EDD and FTB are actively searching for and targeting employers with 1099 workers. The federal and state agencies are emboldened by a recent US Supreme Court decision that changes the nature of how employees are classified.
California now presumes all workers are employees. The legal burden lies on the provider of work to prove they are actually independent contractors. What are some of the distinctions for an independent contractor?
The primary ingredient in an independent contractor is independence and project related or temporary work which is not associated with the primary business focus of the provider of work. The longer the relationship persists, the more the labor and tax agencies will tend to classify the worker as an employee.
What other issues does a government agency consider when determining if a worker is an independent contractor or an employee in an audit? In the eyes of the government, independent contractors have their own business entity which they established with their own source funds. The independent contractor should invoice their clients for payment (versus a check through your company’s payroll system). The independent contractor should not receive more than 60% of their income from a single source. In addition, all of the previous regulations regarding control over when, where and how work is scheduled and performed as well as the provision of technology and tools still apply. Finally, the question they like to ask is directly to the point: “Does the independent contractor have complete control over how work is performed, and what labor and materials are deployed in a manner that places them in direct control over profit and or loss?”
The federal and state agencies are aggressively auditing San Diego businesses searching for 1099 workers. They are looking for the opportunity to reclassify the independent contractors as employees so that they may seek a substantial financial recovery of taxes and other employment related costs from local employers. The newly identified “employee” will qualify for a host of back wages, overtime, compensation for benefits and other financial expenses.
How do you know if a worker is an independent contractor or an employee and if you face misclassification penalties and costs? If you have independent contractors it is time to reconsider your strategy and the relationship between you and your employees. 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.
