20 Mar 2018 Is your Service Provider an Independent Contractor or an Employee in California?
Our economy is increasingly embracing the gig economy model, meaning that companies, entrepreneurs, and others are hiring employees to work on a “gig,” one project at a time. There are many advantages to operating under this business model, not the least of which is flexibility.
Another advantage to operating under a model where the business works primarily with independent contractors is administrative cost savings. For example, if a company hires an employee to work as an employee, then that comes with a myriad of responsibilities for the company. There are state and federal employment laws that must be followed. These laws will determine the kind of support staff a company must have just to manage its employees.
On the other hand, when a company hires independent contractors, the company may simply file Forms 1099 to satisfy their wage reporting requirements. This keeps the company from having to employ other HR professionals to do payroll, withhold taxes from paychecks, and generally keeps administrative costs down.
Lawsuit Filed Over Independent Contractor Status
The change in how companies are required to operate their businesses has brought about many lawsuits challenging it. The problems arise when companies are not aware of or ignore the myriad of California employment laws that apply to them. All it takes is one disgruntled worker who is not satisfied with the employment relationship and a lawsuit may be imminent.
Many of the lawsuits that are prevalent today will claim that a company misclassified the person doing work for the company. While a company generally wants to classify its workers as independent contractors, the workers want employee status and the benefits that come with it. Those benefits vary from industry to industry, and failing to provide them can cost a company large amounts in fines.
Penalties for Misclassification
Besides the obvious penalty of dealing with a lawsuit that has been filed by the former worker, there are state law penalties that can be imposed for misclassifying your employees. For example, if a company is found to have willfully misclassified an employee, then the fine is a minimum of $5,000 per infraction.
In addition, failing to pay an employee at the end of his or her employment, as required by state law, could result in stiff penalties. In those cases, the company would have to pay the worker his or her day rate times the number of days a check is delayed, for up to 30 days of work. As you can see, there are penalties that add up to vast sums in a small amount of time.
What Should Your Company do?
These and other employment issues under California law are always in a state of flux. As a result, it is important that you have the right legal team working with you to understand how California employment law applies to your employment practices. Obviously, if you are already facing a legal challenge from dealing with these issues, then it is very important that you find the right legal team as soon as possible.
At the Royse Law Firm, we routinely handle several kinds of employment issues regarding federal and state law. We look forward to hearing from you and helping you understand what your options are regarding these kinds of legal issues. Contact us today.
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