Independent Contractor Compliance Blog

The State of California is jumping on the “Let’s Make it Riskier to Misclassify an IC” Wagon. SB 1490, introduced on 2/21/08 and amended on 3/27/08, is currently being considered in California’s Senate Appropriations Committee.

What is SB 1490?

It’s basically a California bill patterned after the federal bills I recently shared with you.  If you haven’t read about them you can find them on this blog. They were:

• HR 6111, which provides a whole list of requirements when using IC’s, backed up with a potential $10,000 fine per misclassified IC.
• US Senate Bill 2044 which ties the bills together and makes the IRS and Department of Labor work very close together to make life harder for those who would improperly employ IC’s.

So what does the California version do?

California Senate Bill 1490, if passed into law would require:

1. Any business that employs an independent contractor to provide the IC with a notice that:

• Explains that the individual has been hired as an independent contractor
• Explains the impact that the individual’s status as an independent contractor has on his or her tax obligations
• Explains an IC is not eligible for labor and employment protections (including Wrongful Termination, Unemployment Insurance Benefits and Workman’s Compensation Insurance Benefits)
• Provides the IC with a toll-free number, web site address, and the mailing address for the Employment Development Department to submit requests for a written determination from the EDD as to whether the individual is an independent contractor or employee (Read ask that EDD audit the company).

2. Requires businesses to maintain, for at least two years, records on the independent contractors hired to include:

• The IC’s name
• The IC’s address
• Social Security Number, and, if applicable, federal tax identification number.

So this is no big issue, right? You probably keep this information anyway. Right?

SB 1490 also requires these records be available for inspection by an employee of the Department of Industrial Relations or the Employment Development Department. Fail to do so and pay a civil penalty of $500.

Also under the bill anyone who neglects or refuses to furnish information requested, or refuses access to his or her place of business, or hinders the employees of those departments, or fails to keep any records required by this provision is guilty of a misdemeanor-they want to make it a crime.

Is this a big deal?

If you are doing it right: This bill will only be another inconvenience to businesses that are properly classifying their IC’s and have properly documented their status from the beginning of the project. When the government auditors knock on your door you can take care of the distraction and be about your business. If a worker contacts the EDD, you will be able to prove you did it right. 

If you aren’t: This bill is going to be another powerful tool for the EDD and the Department of industrial Relations against business that are not properly classifying their workers or have not properly maintained a good, solid Compliance File.

By the way-insiders tell me they are anticipating the EEEC, that I reported on recently in this blog under the title of “Are you vulnerable to a Department of Labor audit?” will use the teeth in this bill if it is passed.

Imagine for a moment, that all the bills (federal and state) are passed into law…