What recent developments in California and federal law threaten employers with independent contractors in San Diego? How can local business owners and employers ensure that they are not exposed to substantial civil penalties for misclassification of independent contractors, unpaid overtime litigation and back payroll related taxes and benefits?
The issue is no longer a matter of control over scheduling, or the tools and technology you provide to an independent contractor. The legal issues now focus on the financial relationship between your company and the independent contractor, as well as the type of work they are performing. A recent US Supreme Court case focused on the issue of the financial nature of independent contractors. A California Supreme Court case in January of this year allows the new standards to be applied retroactively.
The EDD has recently announced a focus upon and increased scrutiny of 1099 workers in all business audits. These recent developments threaten San Diego employers with independent contractors.
What percentage of the independent contractor’s income is provided by your company? If the answer is greater than 60% you should be concerned. The higher the percentage of income an independent contractor receives from a single source, the more likely it is for a government agency to make the argument that the worker is actually an employee, not an independent contractor.
Another test involves the nature of the work being performed and the skills associated with that work. If the work in question requires a high degree of specialized skill or certification, the argument for an independent contractor status becomes much stronger. Another issue the Courts have raised is whether the independent contractor has their own company, and the level of investment your company and the independent contractor have made into that business. Is the independent contractor able to influence profit or loss on a job? The legal issues surrounding independent contractors have become much more complicated.
The cost for misclassification is too high to ignore. California’s civil penalty for misclassifying a worker as an independent contractor is a minimum of $5,000 per incidence and is usually closer to $25,000 per violation. In addition, an employer would be liable for all back pay, including any unpaid overtime claimed by the former independent contractor now “employee.” The business owner may not take any deductions or charge any fees associated with these settlements, and most are forced to pay back payroll taxes, unemployment, workers’ compensation as well as the monetary equivalent of all benefits including healthcare. These costs have forced some businesses to close, and severely threaten the financial solvency of many small to mid-sized companies.
Protect yourself. 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.
