A new decision from a California Court of Appeals underscores how erroneously classifying workers as independent contractors rather than employees can have serious tax consequences.
The case involved a group of courier companies—collectively called Sonic—that classified delivery drivers as independent contractors and reported their pay on 1099 forms. The California Employment Development Department, however, decided that the drivers were employees and assessed Sonic $617,328 in employment taxes and penalties, plus interest. Sonic balked, contending that the drivers were properly classified as independent contractors.
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But now an appeals court has upheld the assessment, finding sufficient evidence that Sonic had the right to control the drivers’ work, which is the key indicator of employee status. For example, the court noted, many Sonic drivers worked a regular schedule and drove regular daily routes, a fact that is consistent with employee status and reflects employer control. And the fact that Sonic didn’t exercise detailed supervision over the drivers didn’t undermine employee status, particularly because the simplicity of the work—take this package from point A to point B—made extensive supervision or control unnecessary.
We’ll have more on this case in an upcoming issue of the California Employer Advisor.
Additional Resources:
Employee or Independent Contractor? Hiring and Classifying Contract Workers in California