We’ve discussed before that California businesses need to ensure that all employees are properly classified as an “employee” or “independent contractor.” The failure to properly classify an individual as an employee of a company can have serious consequences for a business, such as a liability for back taxes and penalties. California applies a right-to-control test, which looks at numerous factors to determine whether an individual should be classified as an employee or an independent contractor.
Using Volunteers in Your Business as Employees
Besides the employee versus independent contractor issue, another concern for businesses is the use of volunteers. This issue recently came to light when a California winery was fined $115,000 for using volunteers in its business.
Castro Valley winery was cited by California’s Department of Industrial Relations for using unpaid volunteers in its business. Under California law, a for-profit business may not use volunteers. The winery was cited for not paying minimum wage, not providing wage statements and not paying workers’ compensation insurance.
The volunteers were providing labor and services to the winery without receiving compensation. Some of the volunteers were there to learn about winemaking and were helping out while learning. Winery owner Bill Smyth did not know that the use of volunteers was illegal. What is more, he said it is common practice in the wine industry to use volunteers.
California’s Department of Industrial Relations responds
California’s Department of Industrial Relations responded to some criticism for placing such an onerous penalty on a small business. The Department provided two justifications for issuing the penalty. First, as required under the Labor Code, it is the public policy of the state to ensure that workers do not have to work in substandard conditions. Second, the Department justified its stance because it creates unfair competition to allow some businesses to use labor in their businesses without paying any compensation.
It is important to note that the Department investigated the winery after it received a complaint from a worker who could not receive workers’ compensation. The worker was unable to obtain compensation for an injury suffered while working because the winery classified the individual as a volunteer and not an employee.
Contact a Corporate Law Attorney
Ignorance of the law should not be used as a defense when going up against the state of California. It is an important that a business understands how to classify individuals as volunteers, independent contractors, or employees. An experienced corporate law attorney can help you and your business navigate these employment and tax matters.
Janathan L. Allen, APC’s attorneys have extensive experience with state and federal tax matters that affect businesses. We can advise you and help your business prepare for new developments relating to employment and tax matters.
Our firm is based in San Diego, California, and we have several locations throughout Southern California. Contact our firm today for a free consultation.