Federal and California agencies such as the IRS and EDD have engaged in a crack down on independent contractor misclassification in San Diego and Southern California. What is the new A-B-C test and how does a substantial change in California employment law affect employers across our state?
Misclassification is a Hot Wage and Hour Issue for SoCal Employers
The misclassification of employees as independent contractors or 1099 workers is a hot wage and hour issue for SoCal employers. Employee misclassification is a serious violation of federal and California wage and hour laws and exposes employers to substantial civil fines, penalties, back wages, benefits and interest. The identification of a single example opens your company up to a PAGA class action and substantial internal notification to all workers, independent contractors and employees, past and present.
These amounts almost always reach six figures for each misclassified employee and have become a genuine threat to the viability of employers with misclassified workers.
The EDD has begun conducting “status audits” and the US Department of Labor has hired more than 100 auditors to supplement this work.
We are often asked “How would the EDD find a misclassified independent contractor in my organization?” The answer is two simple ways:
Any time an “independent contractor” is let go and files for unemployment, and
The first question the EDD asks in standard payroll audits is “how many 1099 workers do you have and what type of work are they doing?”
It’s not a matter of “If” it’s a matter of “When.”
The San Diego business attorneys at the Watkins Firm have decades of experience defending local, regional, national and international employers. We are working with our business clients who employ independent contractors to review their policies and procedures regarding the relationship between the company and the independent contractors. Recent rulings by the United States Supreme Court and the California Supreme Court have established new guidelines regarding this relationship, and all San Diego employers who utilize independent contractors must take note.
What Has Changed and What Do I Need to Know as an Employer in California?
Why are the the IRS and EDD are cracking down on employee misclassification in San Diego and across California? The issue no longer rests in control over work schedule and the provision of tools or technology, although these are still factors.
A recent California Supreme Court case has resulted in a game changing legal ruling:
ALL workers in California are presumed to be classified as employees. The legal responsibility and burden to prove a worker is not an employee rests on the provider of work (employer).
The US Supreme Court has authorized state and federal agencies to look into the employment and financial relationship between the company and the independent contractor, as well as the actual nature of work being performed.
The California Supreme Court has added an “A-B-C” test which causes genuine challenges for many San Diego employers with independent contractors. Any provider of work or employer in San Diego and throughout California with 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.”
Most existing independent contractors will fail the second condition above resulting in the risk of misclassification of independent contractors who should actually be “employees” under the new law.
Sound Advice and Counsel for The Crack Down on Independent Contractor Misclassification in San Diego and Southern California
If you are a SoCal employer you need sound advice and counsel for the crack down on independent contractor misclassification in San Diego and Southern California.
New laws and regulations also address the nature of the work itself, and the complexity of that work and increased skill sets required to accomplish it. If the work of an independent contractor is fairly simple and could be completed by most employees, or is an integral part of the contracting company’s central business the worker will in all likelihood be deemed to have been a misclassified employee.
You are safer if your independent contractors require a professional license or have been required to gain a high level of education, occupational training and/or experience in order to perform the work.
The IRS and EDD are cracking down on employee misclassification and independent contractors. Protect yourself from employer misclassification audits and the extreme financial consequences that follow. Contact the experienced wage and hour attorneys at the Watkins Firm or call today for a free and substantive consultation at 858-535-1511.
