The cost of misclassifying workers in California

I recently read some simple yet sage tips on hiring a contractor. As a human capital management professional the first question that pops into my mind is, "Is the person you're hiring a contractor or an employee?"

Before you work through how to hire a contract make sure you're not hiring and employee. Here's how getting it wrong could cost you.

Over the last month some big names have been in the news. Companies in the on-demand / sharing economy sector face legal rulings that could drastically alter their business models. Their business practices have lead courts to conclude many of their workers have been misclassified as independent contractors instead of employees.

The California Labor Commission ruled in one case that an Uber driver was an employee and should be reimbursed for certain expenses. Future wide ranging court rulings could change how other Uber and other operate in California.

Also in June, FedEx made a move to settle over 2,000 claims that will create a $228 million fund to take care of workers of FedEx Ground and Home.

While fines and fees for misclassifying workers may be smaller for the average small business, they are no less impactful for the employer. Try these two simple steps. If you are still not sure seek out professional guidance.

First do a gut check

Are you trying to avoid the added expenses of workers comp insurance, payroll taxes and providing paid sick leave in California? Either figure out how to build in the cost of an employee or do the work on your own. In most cases you'll be better off bringing on the employee in the long run.

Enter the matrix

The IRS has prepared a 20 point checklist you can use to determine if a worker should be classified as an employee or contractor. Answering the questions in the form should be a good indicator on how to classify a worker.

Get help

Your resources for these type of labor issues are plentiful. Contact a good employer focused employment law attorney. If that feels daunting (read expensive) there are several HR support tools you can subscribe to that will provide help from seasoned human resource professionals.

What are youfr concerns regarding the Contractor vs Employee conversation?

California labor law effective January 1st 2013

Based on the employment law alerts I receive, California leads the way in changes for 2013. These changes which take effect one the clock strikes 12:00am New Years Day need to be acted upon by employers promptly. Here is a quick list of what is to come.

What is not a commission? AB2675 will have some refinement regarding commission payment agreements.

Employer Use of Social Media Employers don't ask your staff to provide access to their personal social media accounts. The law says that is a no no.

Employee rights in inspection of personnel files Updates to AB2674 changes the rights of your current and former employees to access their personnel files.

California Wage Garnishment Limit Increase The exempt portion of an employee's weekly pay has gone up to 40 time the minimum wage ($8.00) to $320.00. This effects what can be garnished.

Paying commission to employees will require a contract It looks like you will need a provide a contract to commissioned employees spelling out how commissions are calculated. You will also need to have your employees sign the contract and everyone needs a copy for their records.

Religious freedoms in the workplace Religious freedom definitions have been expanded to included dress and grooming when an employee is observing their beliefs.

As always, each year brings new challenges and opportunities for employers under California labor law.

For professional advice subscribe and indicate where you'd like more help. There are some great local professionals to help you navigate and prepare.


Disclaimer: The information discussed in this post and on EmployBetter.com is for discussion purposes only. This information is in no way offered as legal advice. I am not a lawyer nor is any information provided as legal advice. Please seek professional HR guidance or legal council before taking action.