As a resource to our past, present and potential future clients, the Tax Resolution Institute provides an in-depth analysis of the new California independent contractor law. When Governor Brown signed the new law at the end of 2011, the stakes rose to the next level. and your business could be in serious financial jeopardy, both with payroll tax violations and numerous other penalties. Here is the first part of our two part analysis.
California Enforcement Spotlight On Your Business
Part 1 — If you are a business owner in California and you employ independent contractors, whether you are based in Orange County or San Diego, Los Angeles or Irvine, it is time to pay attention because the EDD could be coming after you. Let’s face the simple truth – California is struggling to collect more revenue and has begun implementing some of the most aggressive tax collection actions in the nation. In October 2011, Governor Brown signed Senate Bill 459 into law that makes the “Willful Misclassification” of employees as independent contractors illegal.
Working with the California Employment Development Department, the law gives California’s Labor Workforce Development Agency authority to assess very high civil penalties and take severe actions against a person or employer violating this new law, including extensive payroll tax violations.
The 3 key points of the law are outlined as follows:
Point 1 – This law allows California’s Labor Commissioner, or a court, to levy a civil penalty of $5,000 to $15,000 for each violation found to be “willful” (a single misclassified individual is one violation).
Point 2 -If the agency, or a court, determines there is a pattern and practice of these “willful misclassifications,” a civil penalty of $10,000 to $25,000 for each violation may be imposed.
Point 3 – These fines are in addition to any other assessments, penalties and fines that may be imposed under other laws.
New Day For Independent Contractors And Employers In California
Do not think that your company will be exempt or you will pass under the radar of this new law. These fines will be levied against any business that continues to “willfully misclassify” workers. “Willful misclassification” is defined in the new law as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” What is truly challenging about the new law is that the courts have generally defined “knowing” in this context as including constructive knowledge, which can mean what an employer purportedly should have known.
What is frightening is that the law not only includes financial penalties and payroll tax violations, but has a public disclosure aspect as well. Any violator will be required to post a letter on its Internet website for one year that explains the violation in detail. The letter must contain the following according to the letter of the law:
(1) That the Labor and Workforce Development Agency or a court, as applicable, has found that the person or employer has committed a serious violation of the law by engaging in the willful misclassification of employees.
Yes, you have to admit in public that you violated the law.
(2) That the person or employer has changed its business practices in order to avoid committing further violations of this section.
Yes, like a child, you must admit on your business premises that not only did wrong, but will do better in the future.
(3) That any employee who believes that he or she is being misclassified as an independent contractor may contact the Labor and Workforce Development Agency. (The notice must include the mailing address, e-mail address, and telephone number of the Agency.)
Yes, the purpose of the posting is to help your employees prosecute you for the willful misclassification.
(4) That the notice is being posted pursuant to a state order.
As you can see, the consequences are extreme and the state of California, represented by the California Employment Development Department and the California’s Labor Workforce Development Agency new and extensive powers of both investigation and retribution. In order to protect your business, you need a tax professional on your side like the Tax Resolution Institute, a respected company with both experienced Tax Resolution Specialists and Tax Attorneys on staff. This ends Part 1 of the account of the new law and regulations in regards to California independent contractors and the new Worker Misclassification Law. If you have a serious payroll tax problem with California Employment Development Department, the time to take action is now. Contact the Tax Resolution Institute for real help!
