New Spotlight on California Workers Misclassification
Worker misclassification is becoming a new hot button issue at both the state and national levels. It has been a long standing practice of employers to misclassify employees as independent contractors so as to avoid payment of taxes, unemployment benefits, workers compensation benefits, overtime, etc. This is a problem for California workers, because they are being denied compensation and benefits to which they are rightfully entitled. It is also a problem for the state of California, which continues to struggle with a huge budget deficit.
The test for determining whether an individual is an employee or an independent contractor depends on the state or federal law being applied. Under common law, an individual is considered an employee “if the person contracting for the services has a right to control and direct both the results of the services and the means by which those results are achieved.”
At the federal level, the IRS and Social Security Administrationhave developed a 20-factor test for determining the level of control held by the person contracting for the services. The factors focus on three primary components:
• Behavior control – the right of the worker to control how a specific task is accomplished
• Financial control – the right of the worker to control the “business aspects” of accomplishing a specific task
• Relationship of the parties – how the parties perceive their relationship
At the state level, California has several different tests including those found in the California Labor Code and California Tax Code. When enforcing wage and hour laws, the California Division of Labor Standards Enforcement (DLSE) uses the “economic realities” test, which like federal law focuses on the degree of control held by the person performing the services. As Jonathan Siegel explains, there are many questions that can be asked, including whether the worker is performing specialized services and providing the required tools and equipment.
To ensure that workers are being properly classified, the IRS has developed a new audit program for employment taxes. Beginning in February 2010 and lasting through 2013, approximately 6,000 companies will be audited. In addition to resolving any worker misclassification issues, the IRS plans to collect data that will be used to improve future employment audits.
President Obama is also doing his part to crack down on worker misclassification. The proposed budget for the fiscal year of 2011 provides the Department of Labor with an additional $25 million to increase enforcement personnel and issue grants to bolster the states’ ability to address this problem.
If you believe your employer has wrongfully classified you as an independent contractor, contact a knowledgeable California labor law attorney. An attorney can explain your rights and may be able to collect many benefits to which you are entitled.
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