San Diego employee misclassification could cost area employers tens of thousands of dollars for each individual violation. There have been significant changes in federal labor laws recently, and one of the most important affects San Diego employers who utilize the services of independent contractors. The Department of Labor recently hired hundreds of auditors, whose sole responsibility is to review employers with independent contractors, looking for any evidence of misclassification. Here in California, the misclassification of an independent contractor carries a civil penalty of between $5,000 and $25,000 per offense (usually closer to the $25,000). That’s just for openers.
Once a federal agency like the Department of Labor or the IRS, or a California state agency establishes “misclassification” the real numbers start to come in. Employers are liable for unpaid overtime, as well as all payroll taxes including FICA, unemployment, workers compensation payments that must be paid as if the independent contractor were an employee all along. In addition, employers are exposed to reimbursement for benefits and retirement contributions offered to employees but not extended to the independent contractor.
The old manner of classifying an independent contractor has significantly changed. Today, the US Supreme Court has established that it is more about the financial relationship between the parties than just a matter of control over scheduling and tasks. The investigator will look at the percentage of annual income the independent contractor makes from your business. If they earn more than 60% of their wages from a single source, the odds of misclassification increase substantially. Next they will look into the work being performed by the independent contractor, the structure of the independent contractor’s company (if any) and the role that your company played in helping the independent contractor to form their business entity.
These are tough questions, and the risk facing San Diego employers is extremely high. The “lawyers for employers” at the Watkins Firm help to prevent San Diego employee misclassification, and work with our clients to modify documentation, evaluate relationships and develop consistent policies that reduce or eliminate misclassification risks. We invite you to contact us for a free consultation at 858-535-1511.