A new California law that went into effect on January 1, 2012 (SB 459 – a.k.a., the “Jobs Killer Act”) that imposes heavy penalties for worker misclassification. If a California employer improperly classifies a worker as “independent contractor” versus “employee” in order to avoid paying benefits such as overtime pay, vacation pay, health insurance and/or employer payroll taxes – penalties could range from $5,000 to $25,000 or more.
There is no guidance in this law regarding how to review worker classification to ensure compliance. Employers must apply tests in California case law and as described by the CA Employment Development Department (EDD). Adding further to the complexity: Federal and California classification standards are different.
This new law is the direct result of California’s cash-strapped government trying to increase revenue – audits will be conducted to ensure compliance with the law. Companies using independent contractors in California need to make certain they pass all tests for such classification.