With the economy still on shaky ground, many employers are desperate to cut costs. But it’s important not to let financial desperation cause you to make bad business choices—such as going into business with the wrong people. As one employer learned, the consequences can be far more costly in the long run.
NCM Direct Delivery, a courier service based in Hayward (Bay Area), thought it had a good idea: converting its messengers from employees to independent contractors. After all, independent contractors generally cost employers significantly less than employees.
NCM hired a professional association—the National Independent Contractors Association (NICA)—to help guide and facilitate the conversion. As part of its service, NICA took over payroll and insurance administration for NCM. It advised NCM that the employee-to-independent contractor conversion was legal.
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Unfortunately for NCM, NICA had been the focus of a number of state investigations and complaints. Since NICA was already on the radar of the California Employment and Development Department (EDD), an audit of NCM’s payroll practices was conducted.
The EDD found that the messengers were performing the same duties as independent contractors that they’d previously performed as employees—but NCM was no longer paying payroll taxes for those employees. The EDD ordered NCM to pay not only back payroll taxes to the state, but hefty fines as well.
We’ll tell you more about this decision—and California law on employees vs. independent contractors—in an upcoming issue of California Employer Advisor.