Are you aware of the new ABC rule for independent contractor classification in San Diego? What will the changes resulting from a recent California Supreme Court decision mean for San Diego and Southern California businesses who use independent contractors as part of their business strategy?
The California Supreme Court recently issued a game-changing opinion which will impact all San Diego and Southern California employers who have 1099 workers. The ruling created an important new legal presumption for anyone who works in California:
All workers are presumed to be employees under California law. The burden lies upon the provider of work to prove a worker is not an employee, but is in fact an independent contractor or 1099 worker.
The Court established a new ABC rule for independent contractor classification which a San Diego or Southern California employer must meet in order to prove a worker is not an employee:
- “that the worker is free from control and direction over performance of the work both under the contract and in fact.” and
- “that the work provided is outside the usual course of the business for which the work is performed,” and
- “that the worker is customarily engaged in an independently established trade, occupation or business.”
Note, as an employer you must prove all three conditions in order to successfully “prove” your independent contractor is not an employee. The second test or “B” test above is one which immediately disqualifies many would be independent contractors.
Are you aware of the new ABC rule for independent contractor classification in San Diego and Southern California? Are your independent contractors properly classified in San Diego according to the new test above? What is your financial exposure if a 1099 worker is found to be misclassified?
The first financial consequence is a civil penalty of up to $25,000 per incidence. In addition, your business will immediately become financially liable for the repayment of related back income taxes, as well as “uncollected” Workers Compensation, Unemployment, Medicare and Social Security taxes for a look-back period of four years. In addition, the misclassified employee(s) may file a lawsuit or class action lawsuit seeking compensation for the benefits they should have received as employees as well as unpaid overtime and other monetary compensation.
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 more about coming into compliance with the new ABC Rule and employee classification.
