In California, it is crucial for companies and businesses to properly classify their workers as either independent contractors or employees in order to remain in compliance with labor laws. A worker who has been misclassified can miss out on many benefits. They should seek guidance from Orange County employee misclassification attorneys to help them recover these losses and understand what is the penalty for misclassification of employees in California.
What Is Employee Misclassification?
Employee misclassification happens when a business incorrectly categorizes a worker as an independent contractor when, legally, they should be labeled an employee. The distinction makes a difference because independent contractors are not entitled to all the same protections and benefits that employees are. Employees have the right to receive minimum wage, overtime pay, meal and rest breaks, unemployment benefits, health insurance, and workers’ compensation.
California currently uses the ABC test to determine if a worker should be classified as an employee or an independent contractor. Based on this test, a worker is only considered an independent contractor if:
- The worker performs their duties independently of the hiring entity’s authority and instruction, both according to the terms of the contract and in practice.
- The worker performs tasks that are not part of the hiring entity’s usual business activities.
- The worker is usually involved in an independently, established trade, profession, or business that is similar to the work they are performing.
If all three conditions of the ABC test are not met, the business must classify the worker as an employee. Businesses should be meticulous in classifying their workers correctly. Even the unintentional misclassification of an employee can potentially result in serious state and federal penalties.
Penalties for Misclassification in California
The employment laws in California are some of the strictest in the country. Misclassifying a worker can have legal, financial, and operational consequences. Some of the penalties may include:
- Civil penalties and fines. An employer who intentionally misclassifies workers can have large fines imposed on them, either by a court or by the Labor and Workforce Development Agency. They may be subject to thousands of dollars in fines per violation for simple misclassification or even larger fines per violation if there is a pattern of such activity. These penalties are in addition to any unpaid taxes or back wages the employer may owe and any other penalties permitted.
- Unpaid wages. Since California law allows employees certain benefits and protections, such as breaks and overtime, misclassification can often lead to underpayment of wages. If an employer misclassifies a worker, they may be required to pay back wages that include unpaid overtime, violations of meal and rest breaks, and any missed wages under California’s minimum wage laws.
- Unpaid taxes and contributions. Employers have an obligation to withhold income taxes and contribute to programs for their employees, such as Social Security and unemployment insurance. On the other hand, independent contractors must pay their own taxes.If a worker is misclassified, the employer could be legally responsible for unpaid payroll taxes, as well as other penalties imposed by the Franchise Tax Board, the Internal Revenue Service (IRS), and the Employment Development Department.
- Workers’ compensation and benefits. In California, employees who are injured on the job are entitled to Worker’s Compensation benefits. If an employee who has been misclassified as an independent contractor suffers a work-related injury, the employer can be liable for lost wages, medical expenses, and other workers’ compensation benefits.State and federal laws entitle employees to other benefits as well, which could result in more financial liability for the employer.
- Class actions and private legal disputes. Employees may file claims against their employer for loss of benefits and wages. Oftentimes, misclassification claims can lead to class actions, where an employer is sued by multiple employees for the same violation. Class actions can be very costly in terms of damages awarded to employees and legal fees.
FAQs
Q. How Much Can You Sue an Employer for Misclassification in California?
A. To determine how much you can potentially sue an employer for misclassification in California, several factors have to be taken into consideration. These include how long you worked while misclassified, how many hours you worked, if you were given appropriate meal and rest breaks, and if you were receiving correct pay. An employment lawyer can help you recover all the damages you are entitled to.
Q. What Industries Are Exempt From the ABC Test?
A. There are a vast number of industries and professions that are exempt from the ABC test, including lawyers, accountants, freelance writers, psychologists, architects, graphic designers, private investigators, and so many more. These workers do not need to satisfy the ABC test to be considered independent contractors, but they may need to pass the Borrello test and meet other requirements.
The Borrello test is less strict than the ABC test, and no single factor of the Borrello test determines a worker’s classification.
Q. What Should an Employer Do if They Accidentally Misclassify a Worker?
A. If an employer accidentally misclassifies a worker, they should immediately reclassify the worker to be in compliance with California labor laws. The employer should also pay any back wages they owe the worker, correct the payroll system to ensure proper benefit and tax withholdings, and consult with a lawyer to address potential penalties.
Q. How Do You Report Misclassification of Employees in California?
A. You can report misclassification of employees in California in a few different ways. You can file a wage claim with the California Labor Commissioner’s Office, report the misclassification to the Employment Development Department for unpaid payroll taxes, and file a complaint with the IRS for any federal tax issues. If you need advice on how to proceed, you can contact an employee misclassification lawyer.
California Employment Law Attorney
If you believe you have been misclassified as an independent contractor, it’s important to seek legal advice. Misclassification can lead to a loss of benefits that you are legally entitled to as an employee, but with an experienced lawyer in your corner, you can protect your rights and recover what you are owed. Contact California Employment Counsel, APC, to schedule a consultation.