What are the penalties for misclassifying independent contractors who should be employees in San Diego and why should you be concerned? What happens when a federal or state agency such as the US Department of Labor (DOL), California Labor & Workforce Development Agency (LWDA), IRS, FTB and EDD audit your company looking for misclassified independent contractors or 1099 workers?
The DOL recently hired 700 new auditors who are totally focused on reviewing all companies with 1099 workers. They are actively targeting employers nationwide and here in Southern California searching for those who pay independent contractors. California agencies are actively targeting employers for audits, and the EDD has made this a standard portion of their payroll audit every 3 years. It isn’t a question of “if” you will be audited for 1099 workers, it is “when.” Why is your company at risk? What potential misclassification liabilities do you face?
The California civil penalty for misclassifying independent contractors who should be employees is $5,000 to $25,000 per incidence. The State has been charging the higher end of that spectrum in recent cases. In addition, the worker is entitled to back wages and unpaid overtime under recent FLSA changes regarding minimum wage and overtime regulations. The look back period is three years for employees to recover wage and benefit reimbursement including but not limited to:
- Unpaid Federal, State and Local Income Taxes
- FICA (Social Security) and Medicare Contributions
- Unpaid Minimum Wages and Overtime Wages
- Unpaid Work Related Expenses
- Unpaid Sick and Vacation Pay
- Unpaid Workers’ Compensation Premiums
In addition the employer carries risks related to federal ERISA laws and 401(k) or retirement plan benefits. If the total number of employees (with the addition of the independent contractors) rises above 50 the employer would be exposed to penalties and look back benefit reimbursement under the Affordable Care Act or ACA.
The risks and penalties for misclassifying independent contractors who should be employees are simply too great. The experienced employer defense attorneys at the Watkins Firm are helping our clients to transition those workers who may be misclassified and to help employers to evaluate their risks regarding independent contractors and 1099 workers. 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.
