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New Bill Would Increase Penalties for Willful Misclassification of Individuals as Independent Contractor

Employers Must Ensure that Their Classification of Employees or Independent Contractors is Accurate

Classification of an individual as an employee or independent contractor continues to be an important topic for employers, especially because a proposed bill could impose high penalties for misclassification.

The California legislature recently sent Senate Bill 459 to Governor Brown for his signature, and if signed, this bill would prohibit an employer from willfully misclassify an individual as an independent contractor.

The bill defines willful misclassification as, “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.”  This bill would further implement civil penalties for willful misclassification.

A first time violator would face a penalty ranging from $5,000 to $10,000 per violation.  However, employers who repeatedly violate the law could pay up to $25,000 per violation.

This bill would not only impact employers, but also an individual who knowingly advises an employer to treat a person as an independent contractor to avoid employee status.  That individual would be held jointly and severally liable if that person was found to not be an independent contractor.  However, this provision would not apply to advice supplied by an attorney or by people within a company.

SB 459 is not the only recent development in this area of employment law.  In September, the Internal Revenue Service (IRS) and the Department of Labor (DOL) signed a memorandum of understanding meant to decrease the number of employers misclassifying their employees as independent contractors.

The agencies plan on sharing information and improving coordination efforts in order to make sure employers are not avoiding their obligation to provide employment protections by misclassify their employees.

How Does This Affect Your Business?

Although proper classification of employees is always important, SB 459 and the recent actions by the IRS and DOL would make it even more essential for employers to make sure they are not misclassifying employees.  Further, if SB 459 becomes law, it would impose high fines on employers for willful misclassification.

If your company works with independent contractors and would like to speak with an expert to ensure they are properly classified, please contact us at info@mitzelgroup.com.