Employee Or Independent Contractor In California? How To Avoid Costly Misclassification Errors

In this article, you can discover…

• The financial and legal risks of misclassifying workers in California.
• Whether inaccurate employee classifications can be corrected.
• How to train your hiring and management staff to avoid misclassifying workers.

What Financial And Legal Risks Do California Employers Face When Workers Are Misclassified?

The risk can be catastrophic to your business, especially when you have classified workers as “independent contractors” when they really should be listed as “employees.”

To have a prayer of independent contractor status, you must have a written agreement in place stating that the contractor supplies their own tools and equipment, will have control over how the job is done, how they will be paid and when, and the job they are to do. Written agreements are key, and a “wink and nod” verbal agreement with an independent contractor can land you in significant legal trouble. If the written contract does not match reality that will get you in trouble as well.

It is crucial to ensure that workers are classified correctly. Independent contractors, for example, are not subject to minimum wage laws, overtime, meal-and-break, or paid leave laws. Employees are. For this reason, having even a single employee misclassified as an independent contractor can cost you significant amounts of money.

For example, I recently settled a case in which a photographer hired by a photo studio was initially classified as an independent contractor.

As it turned out, the photographer’s independent contractor status had not been carefully and precisely established, and they argued that their two years of work for the studio constituted an employment relationship. Those two years of misclassified work cost the studio $60,000 for a single photographer.

Imagine if you had 10, 20, or 100 such workers who were misclassified and then sought compensation for everything they were owed as employees. The losses could be catastrophic for your business. This is why it is so important to set up independent contractor agreements with extraordinary care and understanding, and make proper determinations up front.

Attorney Scott Shibayama is an experienced, thorough employment law attorney serving California. Since 1994, he’s helped employers just like you ensure their workers are properly classed, helping them avoid everything from expensive lawsuits to financial roadblocks in the process.

Have questions, or in need of legal guidance? Reach out to Vision Law® for an initial consultation today.

What Is The Best Process For Correcting A Worker Misclassification In California?

There is really no good way to correct a worker misclassification in California. The most important thing you can do is make a proper designation up front and make absolutely sure you are complying with all laws, classifying workers correctly, and getting everything in writing.

Create your business model with California employment law in mind; 99% of people who start their own business don’t understand how complicated and exacting California laws can be. Frankly, it’s best to pay the extra money for an employee rather than risk losing significant amounts later when you’re sued for misclassifying them.

Take the extra time to consult an attorney, have the correct documents drafted, and ensure you correctly classify your workers. Years of unpaid PTO, sick leave, overtime, and other benefits can truly cost you an extraordinary amount of money if it’s determined that you misclassified a worker.

What’s more, improperly classifying workers can make a business difficult to sell should you wish to retire, as few buyers would be likely to take on that legal risk. Always make sure workers are classified correctly from day one.

How Can I Train My Company’s Managers To Avoid Risky Classification Practices?

Hiring managers shouldn’t have anything to do with classifying workers. This is up to the owner of the small to medium-sized business. Ultimately, the buck stops with you.

It’s best to work hand-in-hand with managers to ensure that every worker you take on is classed correctly. Managers need to understand these matters as well as you do, and you, in turn, need to have a very clear and precise understanding of how to classify each hire.

Remember, an independent contractor is unique and specific, and 95% of the time, a worker is not an independent contractor but an employee.

If you’re unsure of which applies, reach out to my firm. We can help you ensure that everyone who works with you, from an electrician to an HR manager to an accountant, is properly classed according to the California Labor Code.

Still Have Questions? Ready To Get Started?

For more information on employees vs independent contractors in California, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (855) 534-5948 today.