California is now the twelfth state to coordinate its enforcement efforts with the U.S. Department of Labor (“DOL”) to combat worker misclassification as independent contractors. The other eleven states are Colorado, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington. Expect more states to follow.
Calironia passes Senate Bill 459 to increase the penalties for for misclassifying workers as independent contractors. Governor Brown’s signature on the new law came just days after the IRS announced its new Voluntary Classification Settlement Program (VCSP). The VCSP provides generous forgiveness of most of the amounts that would otherwise be due at the federal level for those employers that reclassify independent contractors as employees.
The determination of whether a worker is an employee or an independent contractor is based on a common law test that requires significant judgment. If litigation is required, the presentation can usually be improved with a testifying accountant who can both (i) present the business’s situation, and (ii) draw comparisons to other economic situations that provide important insights as to the correct answer.