Wrongfully classifying your employees as independent contractors will cost you more than just the penalties of typical labor law violations. The new employment bill signed by California Governor Jerry Brown – Senate Bill 459 pushes the boundaries for employers who are committing a serious violation of the law.
According to Sections 226.8 of the California Labor Code, (a) any person, or employer that engages in :
(1.) Willful misclassification of a person as an “independent contractor” and;
(2.) Charges the contractor for compensation purposes that arises from his/her being misclassified including payment rentals, licenses, and other purchases that are not obligatory by nature but arises due to his/her being misclassified.
Any employers found to have violated SB459 will be subject to civil penalties including but not limited to:
(2) (b) Paying the amount of not less than $5,000 but not more than $15,000 per violation, plus any other penalties deemed included by the law.
(2) (c) If found to be liable for repetitive violation or series of patterns and practices, employers must pay more than $10,000 but not more than $25,000 per violation as well as any other penalties incurred in the process.
(d) (2) (e) Any employer found to have willfully violated the law is required to post a notice on their website or any other place for the general public informing the latter that the establishment has committed a serious violation of the law. The notice must be posted for one year including all the requirements set aside by the Labor and Workforce Development Agency.
Anyone who knowingly advises the employer to willfully misclassify the employee as an independent contractor is jointly and severally liable together with the former except if the person dispensing the advice is his or her attorney who is authorized to provide legal advice to his/her client. (SB 459) ( Sec 2. ) (Sec 2753) (b) (2.)
What to Do If You have already misclassified?
Employers who feel that they might have committed the violation can use the IRS’ Voluntary Classification Settlement Program. The program allow employers to reclassify their independent contractors at the same time enjoy reduced payroll tax liability in the process.
It is to be taken note of that seeking legal counsel is still needed as the program does not exempt employers from being liable to pay any penalties that arise from other violations such as failure to keep employee’s record, unemployment insurance, and other violations as well.
Bottom line, do not make this mistake – it is costly.