{"id":4319,"date":"2023-06-29T18:03:04","date_gmt":"2023-06-29T18:03:04","guid":{"rendered":"https:\/\/shegerianconniff.com\/?p=4319"},"modified":"2023-06-29T18:03:04","modified_gmt":"2023-06-29T18:03:04","slug":"employee-misclassification-understanding-the-consequences-for-employers","status":"publish","type":"post","link":"https:\/\/shegerianconniff.com\/dev\/employee-misclassification-understanding-the-consequences-for-employers\/","title":{"rendered":"Employee Misclassification: Understanding the Consequences for Employers"},"content":{"rendered":"

California law requires employers to correctly classify employees. Incorrect classifications can be costly with fines of up to $25,000 per violation. Plus, the EDD can add penalties of up to 15% if you disregarded the requirements to report and pay taxes for the workers you misclassified. It gets costly.<\/span><\/p>\n

Employers often try this to get out of paying employment taxes and benefits like health and dental insurance. It can keep an employer from having to pay overtime. It\u2019s a practice that was widely abused across California and the U.S., leading to changes in California\u2019s employment laws.<\/span><\/p>\n

What can you do to ensure you\u2019re properly classifying your workers? California uses the ABC Test to answer this question. AB 5 was signed into law in 2019 and requires companies to use the ABC Test to determine if a worker is an employee or an independent contractor.<\/span><\/p>\n

Take a Closer Look at California\u2019s ABC Test<\/span><\/h3>\n

The ABC Test is a three-part test to determine exactly what role a worker<\/a> has within your company. If you\u2019re a contract worker, use this test and see if you have been correctly classified. You must consider and answer these questions.<\/span><\/p>\n

Part A:\u00a0<\/span><\/p>\n

Does your company have any control over or otherwise direct the worker\u2019s performance during the extent of the contract and while doing work for you?\u00a0<\/span><\/p>\n

Suppose you\u2019re hiring an online support person to work from their home, but you require them to be online and ready to answer questions from 9 a.m. PST to 4 p.m. PST. You are controlling their work hours and cannot call them a contractor.\u00a0<\/span><\/p>\n

Suppose you’re hired to be an office cleaner, but they require you to be available during specific hours five days a week. You must attend all employee safety and sexual harassment training sessions or you’ll be replaced by a competitor. You may have been misclassified.<\/span><\/p>\n

Part B:<\/span><\/p>\n

Does the worker do tasks or jobs that are outside of your usual business practices?<\/span><\/p>\n

If you have hired a worker to do things that are a normal part of your business, you cannot answer the Part B question with a \u201cyes.\u201d\u00a0 Say you hire an electrician to wire your new office for computer stations in an insurance company, the electrician is doing work that\u2019s outside of your business practice. The electrician counts as a contractor.\u00a0<\/span><\/p>\n

Now, you hire at-home workers to take calls and guide people to the right insurance plan. They are doing work that\u2019s a normal part of your business, so you would not be able to meet the requirements of Part B.<\/span><\/p>\n

Suppose you\u2019re a personal chef and are asked to work at a restaurant for a wedding catering job. You would be doing work that\u2019s within the restaurant\u2019s usual business practice. You would qualify as a temporary employee and not a contractor.<\/span><\/p>\n

Part C:<\/span><\/p>\n

Finally, there\u2019s Part C that asks if the worker has an independently established occupation or trade that provides the same type of work they\u2019re doing for your company.\u00a0<\/span><\/p>\n

Go back to the first example where you hire a work-from-home support desk person to take customer service calls. That worker\u2019s website markets skills such as bookkeeping and tax preparation, not customer service. You couldn\u2019t meet the requirements of Part C.<\/span><\/p>\n

If the worker doesn\u2019t have an independent business but is building a virtual customer support business after the contract with you is up, you cannot claim that it is currently that worker\u2019s independent business.<\/span><\/p>\n

You are a self-employed virtual assistant and you\u2019re asked to work for a company that pairs virtual assistants with clients in need of service. You\u2019re providing the same services as the company, so you could be classified as a contractor.<\/span><\/p>\n

In some situations, the ABC Test isn\u2019t applicable. In this case, the older Borello Test is used. Occupations where the Borello Test is used instead include certain:<\/span><\/p>\n