One of the strongest states in terms of battling employee misclassification, California, is going even further to battle this growing problem. On February 9th, California’s Secretary of Labor, Marty Morgenstern, entered into a Memorandum of Understanding with the U.S. Department of Labor that will allow the state to partner with the DOL’s Wage and Hour Division to further combat employee misclassification.
For states like California there is much more to this than protecting workers’ rights. State agencies are unfairly punished by the practice when taxes, which are inaccurately or unpaid by misclassified workers, are lost.
California is one of 14 states to enter such a partnership, joining Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington.
The DOL’s Misclassification Initiative was launched under Vice President Biden’s Middle Class Task Force with the goal of preventing, detecting, and remedying employee misclassification.
California’s SB459 added sections to the code that prohibit employers from:
• Willfully misclassifying an individual as an independent contractor (IC) (“willful misclassification” means “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor”).
• Charging misclassified ICs for expenses that could not be charged to employees. For example: charging for space, equipment rental, goods, materials, maintenance, fines, etc.
• Deducting from the pay of misclassified ICs where the deductions would be prohibited for employees.
That law also prohibits individuals from knowingly advising employers to treat an individual as an independent contractor, despite the individual not meeting the IRS’ standards for independent contractors. The law strengthens penalties for those who misclassify employees:
• $5-15K per violation
• $10-25K per violation if a “pattern or practice” of violations is found.*
• Violators are also required to post a notice prominently on the company’s website, or (if the company does not have a website) in an area accessible to all employees and to the general public, stating that they have violated the law. This must be posted for a period of one year.
• Contractors licensed under CA’s License Law will be subject to disciplinary action up to and including debarment by the Contractor’s State License Board.
The state’s new partnership with the DOL will help them continue to be leaders in battling employee misclassification. It will also hopefully help the DOL bring other states aboard.