Work Comp Classification Crackdown: Get It Right Or Pay Big!

Posted on: October 21st, 2011 by Leaders' Choice Staff No Comments

Workers Compensation Fines and GavelHow savvy are you when it comes to Workers’ Comp classification for your employees? If you aren’t, you either should be or let someone (like us) help you. The recently signed Senate Bill 459 is bringing with it some real teeth when it comes to penalizing businesses that misclassify their workers to the tune of up to $25,000 per violation. Don’t let it bite you.  

Signed on October 9th the bill into effect thirty days after that date so, if you’re in violation, the clock is ticking loudly. The bill also has a scarlet letter provision requiring companies that violate the law to post a notice admitting guilt prominently on their website or in a place that the public and company employees can see it!

Among the provisions of SB 459 is a new section to the Labor Code, section 226.8 which sets forth provisions that apply to all California employers. It makes it unlawful to misclassify an individual as an independent contractor and, if an employer had willfully misclassified someone, it would also be prohibited from charging the worker a fee or making deductions from their compensation that it would not normally deduct from an employee’s wages.

Barred fees and deductions include; goods, materials, space rental, licenses, repairs, maintenance and fines. It also imposes penalties between $5,000 and$15,000 for each violation, in addition to any other fines permitted by law.  Additional deductions or fee charged to the employee counts as its own violation. Also, if the Labor Workforce Development Agency or a court determines the employer has engaged in a pattern or practice of violations, the fine jumps to between $10,000 and $25,000 per violation.

The real danger is to businesses that are misclassifying in error or ignorance. The use of independent contractors has always been a gray area.  According to a statement on the Department of Industrial Relations website:

There is no set definition of the term ‘‘independent contractor” for all purposes, and the issue of whether a worker is an employee or independent contractor depends upon the particular area of law to be applied.”       

Generally, a person is considered an employee if the company retains the right to control the manner and means of the work. The best thing to do is do a review of the people that work for you, independent and not, and make sure that you are classifying them correctly. 

Share your Workers’ Compensation employee class code stories with us in the comment section below. We promise to publish the best ones!

At Leaders’ Choice we are committed to helping your businesses bottom line. Our average customer saves 30% on their Workers’ Compensation Insurance rate.