Many California and San Diego business owners are rightfully concerned about the question of independent contractors or employees as they plan new business strategies for growth in 2022. While momentum at the federal level has stalled, the question of independent contractor or employee has never presented greater challenges. The State of California and the Employment Development Department or EDD in particular are challenging all 1099 workers and the nature of their employment relationship with the provider of work. Why should a business owner be concerned? When the EDD, California Department of Labor or the IRS assert 1099 workers are misclassified “employees” the liabilities and costs to the employer quickly reaches six figures for each employee.
Misclassification of employees as independent contractors is a violation of a civil code carrying a penalty of $5,000 to 25,000 per occurrence. The employer must then pay all back federal, state and local employer matching taxes including unemployment, workers compensation and social security taxes, as well as reimbursement to the “employee” for unprovided benefits, healthcare, vacation and even unpaid overtime.
What has changed about independent contractors or employees for San Diego business owners? Primarily it is the now the presumption in the State of California that all workers are employees. The legal burden is now on the provider of work to prove an independent contractor is not an employee.
The new ABC test established by the Dynamex ruling requires that any business, entity or individual providing work to a 1099 worker or independent contractor must prove:
A – “that the worker is free from control and direction over performance of the work both under the contract and in fact.” And
B – “that the work provided is outside the usual course of the business for which the work is performed,” and
C – “that the worker is customarily engaged in an independently established trade, occupation or business.”
What is the genuine nature of the financial relationship between the 1099 worker and the work provider. What is the nature of the work the independent contractor is doing compared with the work provider’s company earnings?
Other historical issues of control such as the provision of tools or training, scheduling and other constraints still apply. The question of whether to structure this portion of your work force as independent contractors or employees for San Diego business owners is a crucial issue. We invite you to contact the San Diego employer defense and general business counsel attorneys at the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
