Employers know that there are many administrative responsibilities they must give special attention to. This includes such issues as paying taxes, making sure you comply with any local ordinances, and keeping your inventory up to date, just to name a few. Employers are also free to determine how they want to accomplish their work. Employers can hire employees to work directly for their business. Alternatively, they can retain the services of an independent contractor. It is essential that employers properly classify their workers.
Under the California workers’ compensations system, an employer is required to provide workers’ compensation insurance for all employees. The failure to provide the required insurance can result in hefty civil penalties and in some cases, even criminal charges. However, an employer is not required to provide workers’ compensation insurance for independent contractors. To that end, many employers end up classifying all of their workers as independent contractors to try to get out of providing insurance and benefits. Like the failure to provide insurance coverage at all, the misclassification of workers as independent contractors can carry heavy repercussions. If it is discovered that a worker is misclassified, California law provides that an employer may have to go back and pay unpaid payroll taxes that were avoided because of the misclassification. California law also provides for civil penalties starting at $5,000 for each misclassification and go up from there. Moreover, the misclassified worker can seek up to three years of back wages, including unpaid overtime.
It is clear that employers need to be diligent in their proper classification. However, there is not exactly a set definition of “independent contractor” versus “employee,” although employee is defined in labor code section 3351. That said, there are several issues the court will examine when trying to decide whether a worker is an independent contractor. One of the most important issues is what type of control the worker has on how his or her work is completed. For example, if the employer sets specific times when the worker must do the work as well as a particular place, that indicates the worker is actually an employee. Another indication is if the employer provides the tools and equipment necessary to complete the work, the worker may actually be an employee and not an independent contractor.
We have experience assisting our clients understand worker classification. Contact us today to talk about your business and what we can do to help make sure you are in full compliance with the law