What are the penalties for independent contractor misclassification in San Diego or Southern California? What is the recent Supreme Court decision everyone is talking about, and why is it important to come into immediate compliance with the new law? The central issue which came out of the recent Supreme Court case is the new baseline in California that all workers are legally presumed to be employees unless the provider of work can prove otherwise through a new A-B-C test.
It is very important for all employers to understand more about the decision itself, the new A-B-C test and the immediate impact new laws have made on federal and state pursuit of misclassification of independent contractors. The EDD regularly audits every California business and the first question in these audits has become “do you have any 1099 workers.” This is also true for the IRS. It is not only quite easy for state and federal agencies to target California businesses with 1099 workers, the agencies have a strong incentive to do so:
The fines and penalties associated with the misclassification of independent contractors is a major source of revenue and taxes for state and federal agencies
What are the penalties for independent contractor misclassification in San Diego and across California? In financial terms, the risks faced in misclassification cases cannot be overstated. In many cases, the resulting exorbitant fines and expenses force the accused company out of business. They simply cannot afford to pay all of the penalties and back wages, taxes and benefits including but not limited to:
Civil penalty for Misclassification $10,000 to $25,000 per incidence (note: usually assessed at the higher amount)
1.5% IRS penalty for all 1099 wages paid during the look back period; This doubles to 3% if a 1099 wasn’t properly filed
10% California fine on all “unpaid taxes” – taxes which should have been collected directly from the “employee” during the look back period
Payment of the financial value of all benefits which should have been provided as well as exposure to unpaid overtime and wage and hour violations
Payment of all federal and state income taxes, employer matching, Medicare Social Security, Workers Compensation and Unemployment for the look back period
The look back period is four years.
The penalties for independent contractor misclassification in San Diego and across California are financially crushing. It is important to take immediate steps to protect your company and to come into compliance with new California laws to reduce future exposure. 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.
