There are myriad risks associated with Independent Contractor (IC) status. In addition to overtime, minimum wage, and meal and rest period considerations, there is also the question of employee benefits such as vacation, insurance coverage, and stock options, violation of leave laws, PAGA, and workers’ compensation and liability insurance exposure. Moreover, there tax ramifications that must be understood and properly managed to mitigate penalties in the event a problem, question, or litigation claim arises. Knowing these risks, employers should carefully evaluate employee classifications issues to ensure compliance.
Of course, the COVID 19 pandemic has not made the risks inherent in IC status any easier. There are complicated Cal/OSHA ETS and CDPH matters that impact ICs, and employee’s alike including vaccination status, testing and exclusion requirements, return to work policies, and booster eligibility.
Employers must also consider supplemental sick leave entitlement for COVID-related absences. Under the statute, ICs are not entitled to COVID-related sick leave while employees are. This will be another area of exposure for a misclassified employee.
AB-5 has affected and will continue to impact employers throughout California. In particular, business employers should carefully review their IC relationships within the new paradigm of the current AB-5 framework while satisfying the ABC test or the Borello multi-factor test for exempted occupations. Penalties for violation of AB-5 can be substantial, ranging from $5,000 to up to $25,000 per violation per Labor Code section 226.8, which prohibits the willful misclassification of individuals as independent contractors, in addition to the labor code violations mentioned above.
Employers who have not carefully reviewed and adjusted their IC protocols to AB-5 could face city and state authority scrutiny and an onslaught of litigation claims from individual workers arguing they were misclassified.
If you have not already, engage legal counsel to advise on you on your organization’s independent contractor protocols and independent contractor agreements to ensure workers meet applicable AB-5 standards.
