What makes misclassification of independent contractors even more complex in California? A recent California Supreme Court Case has expanded the liability for the misclassification of workers as independent contractors and makes misclassification of independent contractors even more complex.
The Supreme Court recently declared worker classifications (2018 Dynamex) regarding independent contractors can be applied retroactively to any previous non-final case.
The case basically reaffirms the A-B-C testing established in the Dynamex case while allowing for the State of California and affected “employees” (former independent contractors) to come after the company for a look back period of 2 to 3 years or longer.
One of the issues which makes misclassification of independent contractors even more complex is the nature of the relationship and the work performed. The recent decision allows agencies to look into the actual relationship between the provider of the work and the worker.
The “B” question of Dynamex basically asks if the worker is working “in the hiring entity’s business.” The work to be performed by an independent contractor must be outside of the hiring company’s “usual course of business.” Therefore, if any independent contractor is working on any aspect of your business which directly relates to your company, they should be classified as an employee.
California tax agencies such as the EDD and FTB are looking for additional sources of revenue, especially after the impact of the past year on California’s state budget. The EDD, FTB and the IRS, have recently focused much more closely on the nature of “independent contractors” during the process of an audit. California law assumes all workers to be “employees” and it is up to the company providing the opportunity for income to prove otherwise. This makes the issue of misclassification of independent contractors even more complex for San Diego and California employers.
A finding of misclassification opens your company up to a civil fine up to $25,000 per worker, as well as the immediate obligation to pay the misclassified “employee’s” back payroll taxes, unemployment, workers compensation and FICA. In addition, the employee will pursue compensation for unpaid overtime, and just compensation for all benefits provided to company employees which were not extended to the independent contractor. This makes misclassification of independent contractors even more complex for California business owners.
These are changing times and tax exposures are becoming much more complex. If your company contracts with others to provide labor or service employees, or if you are concerned about the nature of “independent contractors” we invite you to contact us or call today to schedule a free consultation at 866-631-3470.
