Personnel records are typically kept for employees, but what about independent contractors? What type of information should be kept on file to prove independent contractor status?
SB 459: Willful Misclassification of Independent Contractors
Senate Bill 459 (SB 459) adds section 226.8 to the California Labor Code prohibiting the willful misclassification of individuals as independent contractors. It is also unlawful to charge willfully misclassified independent contractors a fee or to make any deduction from compensation for any purpose, such as requiring the contractor to pay for goods, materials, space rental, services, government licenses, repairs, equipment, maintenance, or fines arising from the individual’s employment.
SB 459 also adds section 2753 to the Labor Code, which provides that a person, who for money or other valuable consideration, knowingly advises an employer to treat an individual as an independent contractor in order to avoid employee status shall be jointly and severally liable with the employer if the individual is found to be an independent contractor. This is an important note for HR consultants!
In a recent CER webinar, Marc Jacuzzi confirmed: “HR practitioners . . . if you are providing information . . . and you’re not employed by the employer, you can be held jointly and severally liable if you willfully misclassify an independent contractor.” Section 2753 does not apply, however, to attorneys and to people who provides advice to their own employers.
If this willful misclassification is discovered, the fees are steep. Fines start at $5,000 and range as high as $15,000 per violation. If someone is found to have engaged in a pattern or practice of misclassification, then fines can range from $10,000 up to $25,000 per violation. Penalties may be imposed by various agencies, such as Labor Commissioner, Workers Compensation Board, and Employment Development Department. Penalties may also assessed by state and federal courts.
Can Personnel Records Help Avoid Misclassification Claims?
How can personnel records help you avoid misclassification claims for independent contractors? Companies don’t usually think of a personnel file for an independent contractor – which stands to reason, given the distinction. However, there is still an argument to have a file – an independent contractor file instead of a personnel file. In that file, have (if applicable):
- Contractor’s business license
- Contractor’s incorporation records
- Contractor’s business cards and letterhead
- Contractor’s list of other customers
- Contractor’s insurance policies, such as liability and workers’ compensation
- Copy of the independent contractor agreement
- Invoices
- Completed W-9 (for 1099 payments)
“These are the types of records that you want to keep . . . because that way you’ll be able to defend yourself if you’re sued by a contractor claiming that they were misclassified.” Jacuzzi noted.
The above information is excerpted from the webinar titled “What to Save, What to Shred: Legal and Practical Recordkeeping Rules for California HR.” To register for a future webinar, visit CER webinars.
Marc L. Jacuzzi, Esq., is a shareholder in the law firm of Simpson, Garrity, Innes & Jacuzzi. He advises clients regarding all aspects of the employer/employee relationship including hiring and termination, wage and hour requirements, employee classification, civil rights and discrimination issues, employee investigations, commission plans, employment contracts, employee handbooks and policies, confidential information agreements, reductions in force, leaves of absence, employment audits, M&A employment issues, violence in the workplace, and international employment issues.
What a great idea about the contractor records to keep. I think a lot of employers have files with W-9s and agreements, but that additional info should help an employer accused of misclassification defend itself.
What a great idea about the contractor records to keep. I think a lot of employers have files with W-9s and agreements, but that additional info should help an employer accused of misclassification defend itself.