Did You Know

On October 9, 2011, California Governor Jerry Brown signed nearly two dozen new California human resources and labor-related bills into law, effective this year. Over the next few days I will hightlight the seven most important of these California laws.. 

SB-459: Worker Misclassification Act. SB-459 is designed to crack down on the misclassification of employees as independent contractors.

 California Senate Bill 459,  known as the “The Job Killer Act,” imposes severe penalties on employers who “willfully” misclassify workers as independent contractors. On the Federal level, worker misclassification has also been the focus of attention by the Department of Labor. Labor Secretary Hilda Solis,  stated, “The misclassification of employees as independent contractors is an alarming trend. The practice is a serious threat to both workers, who are entitled to good, safe jobs, and to employers who obey the law and are undercut when others use illegal practices.”

The Labor Department is now sharing information regarding businesses that misclassify workers with the IRS. The DOL has hired around 300 investigators to explore wage theft complaints. The IRS has already collected almost $4 million of back wages in 2010, during the first of its three-year plan to audit some 6000 randomly selected, various sized companies.

Employers who misclassify employees may face significant penalties, in addition to employment taxes and benefits.  All employers should review their employee job descriptions and reclassifying misclassified workers if necessary.  The following suggestions should help.

1. Read through the Labor Department’s rules and examine workers’ job descriptions to determine whether classifications are correct.
2. Review the IRS guidelines. The IRS provides clear eligibility parameters for determining independent contractor status. One must consider all information that helps determine the degree of control and independence maintained by the worker in relation to the company.

 To prevent  financial penalties, be proactive, investigate complaints promptly, carefully check each worker’s status and reclassify as necessary.