What are the risks associated with independent contractors in San Diego, and why has the misclassification of independent contractors become such a hot issue for California employers? The US Department of Labor (DOL), the IRS and California state agencies such as the EDD have made the audit of independent contractors on of the highest priorities for 2021 and beyond. The reason is simple: tax revenue. The US government and the State of California are constantly searching for new sources of revenue after the pandemic, and they have found one: The misclassification of employees as independent contractors.
A recent Supreme Court decision changed the nature of evaluating the relationship between a company and an independent contractor. In the past, the issues were more about control:
- Control over hours worked, work scheduling
- Provision of Tools and Technology
The Supreme Court noted that the real measure lies in the economic relationship between the parties, and whether or not an independent contractor actually has a separate business from the sources of their work.
For example, if an independent contractor gains more than 60% of their income from a single source, a red flag is raised. Other questions focus on how the business entity of the independent contractor was established, and contributions of both parties to that business entity and operational expenses. Has the independent contractor genuinely started their own business, or is this simply a “construct” to avoid the payment of employment taxes, benefits and even retirement?
The federal and state agencies have taken very aggressive action to re-classify independent contractors as employees, opening the employer to steep (and in some cases business threatening) financial liabilities for back pay, payroll taxes, FICA, as well as remuneration for unpaid benefits and retirement eligibility.
Protect your company, and work with the experienced wage and hour and employment attorneys at the Watkins Firm to access the risk associated with independent contractors and your existing relationships, agreements and policies. 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.
