While US Administration Walks Back Independent Contractor Rules California and the EDD Increase Misclassification Audits

August 14, 2017

In recent months the current US administration has signaled a change in the position of the previous administration regarding the classification of independent contractors.  This comes at a time when California and the EDD increase misclassification audits based upon a recent decision in the California Court of Appeal, Sixth District.  The decision in the case, JKH Enterprises v. Department of Industrial Relations was based upon a small courier business which had reclassified company drivers as independent contractors.  The California Labor Commissioner issued a stop order and a fine for each employee.  After appealing the decision in a hearing and through administrative process of the Superior Court, the case was appealed to the Sixth District.

As EDD auditors increase misclassification audits in search of additional tax revenue, California employers are wondering which classification model will win out: the federal or the State of California?  Today, the law of the land is based upon the financial models established by the Obama administration and California’s Court of Appeals.  The State of California and the EDD increase misclassification audits to generate tax revenue.  The employer is left seeking answers.

Allen Barron’s integrated business, legal, tax and accounting services provide answers to employers who wish to discern the path going forward.  You may risk it and simply attempt to save by classifying workers as independent contractors.  If California and the EDD disagree with you, your company will face:

  • Stop Orders and Penalties for Each Worker (Civil Misclassification Penalty up to $25,000 per worker)
  • Liability for back pay, overtime, meal and rest break pay, benefits, health care reimbursement and other remedies available to your employees under the Labor Code and Orders of the Industrial Welfare Commission.
  • Exposure for liability for injuries suffered by employees when workers compensation has not been secured
  • Exposure for unfair business practices
  • Substantial tax liability impacting not only California tax but IRS investigation as well
  • Criminal liability

The misclassification of employees as independent contractors is still a major issue as California and the EDD increase misclassification audits as part of their tax collection strategy.  We invite employers to contact us at 866-631-3741 for a free consultation.

Contact an Estate Planning, Business Law Or Tax Attorney Today

To set up a free, no-obligation consultation with one of our knowledgeable San Diego based estate planning, business and tax lawyers, or learn more about our tax preparation, accounting and business advisory services call us at 866-631-3470 or contact us.