Every employer that takes on a workforce has several risks that they can’t help but face. There are risks of liability for the actions of your workforce and risks of violating overtime laws in California. However, one risk that you should take very seriously is the risk of accidental misclassification.
California has strict laws around the misclassification of employees. It comes with steep civil fines and can build a bad reputation for your company. Here’s what you should know:
Defining misclassification
Misclassification is the coding of someone who does the work of an employee as an independent contractor. The reason one would choose to employ contractors is simple. Contractors do not have the same rights to benefits as an employee, including:
- No overtime restrictions
- No healthcare benefits
- Retirement benefits
- No right to organize as a union
- No sick days
Independent contractors work for themselves and therefore are assumed not to need such things. While many would choose to work as an independent contractor for flexibility and control, that’s not a reality for everyone.
When does misclassification happen?
There are two types of misclassification: willful and accidental. Willful misclassification is when an employer knowingly classifies their workforce as contractors to get around California’s employee rights and compensation laws. These instances can be penalized with a civil penalty between $5000 and $25000.
Accidental misclassification is a bit different. It is when the circumstances of the contractor’s work encompass the work of an employee without intending to do so. Largely, courts will employ a test called the “Borello test,” which looks at several factors, such as:
- Who supplies the tools?
- Is the work supervised?
- Does the worker consider themselves as ‘part of the business”?
- How permanent is the relationship?
The Borello test is quite lengthy and has many other questions. The answers to those questions will determine if someone is a contractor or not – as the courts in California define it.
What happens if I accidentally misclassify someone?
If you truly misclassify an employee accidentally, you may use a good faith defense. You erred by not understanding the law. You may still face fines, but your attorney will have ample ability to craft a defense in these cases.