Unfortunately, some employers misclassify their employees to get out of paying them appropriately, offering certain benefits, and ensuring that the workers get the labor rights they deserve. But what happens to employers that intentionally misclassify employees in California – do they get into trouble, and are they required to compensate their misclassified workers? Here’s what you need to know.
What Happens to Employers That Intentionally Misclassify Employees in California?
First things first: Salary misclassification is a serious issue, and it occurs all over the state. Sometimes employers do it on purpose, and in other cases, it’s a simple error because an employer doesn’t understand the differences between freelancers, contractors or gig workers and hourly employees.
Related: Employees versus contractors: Which are you?
Employers that intentionally misclassify employees in California can get into trouble – and in some cases, they can be subject to serious penalties that involve compensating their misclassified employee. Generally, employers that misclassify workers may face:
- A misclassification penalty
- Back payments to the misclassified employee
- An unpaid wage penalty
- A waiting time penalty
- Attorney’s fees and court costs
- Tax penalties through the Internal Revenue Service
- A website notice
- A wage statement penalty
- Criminal penalties
- Damages for retaliation, in rare cases
Here’s a closer look at each.
The California Misclassification Penalty
California law allows the courts to charge a civil penalty to employers that intentionally misclassify workers. The penalty can range between $5,000 and $15,000 per violation – and if an employer has been proven to engage in a pattern of willful misclassification, the courts can fine them an additional $10,000 to $25,000.
If an employee has been underpaid due to salary misclassification (such as by not receiving minimum wage or overtime pay), the employer can be ordered to hand over up to three years’ worth of back pay that the employee was entitled to receive.
Unpaid Wage Penalties to California Workers
Employers can be subject to civil penalties for failing to pay in full or on time when they’ve intentionally misclassified their employees. On a first violation, the employer can be required to pay $100 for each failure to pay full wages; on subsequent violations, the employer can be required to pay $200 per each failure to pay and an additional 25 percent of the amount unlawfully withheld.
The Waiting Time Penalty
When employers willfully fail to pay final wages on time (and in full) after an employee’s employment ends, they can be required to pay a full day of wages for each full day that payment is delayed. The penalty can accrue for up to 30 days.
If an employer owes a worker money due to salary misclassification, the court can require it to pay interest on the amount that it owes the worker.
Attorney’s Fees and Court Costs
Lawsuits can be expensive – but in some cases, the courts order employers to pay attorney’s fees and court costs for employees who have been forced to sue.
Tax Penalties Through the IRS
When the IRS determines that a worker isn’t a contractor but an employee instead, it can require the employer that misclassified the worker to pay tax penalties. That’s true whether the misclassification was accidental or intentional.
A Website Notice
When an employer is found to have intentionally misclassified an employee, it may be required to post a website notice that says it did so.
A Wage Statement Penalty
Employers are required to provide itemized wage statements to hourly workers – but when an employee is misclassified, employers don’t have that information. The courts can order the employer to pay fines (and workers can sue) for failing to comply with the recordkeeping requirements of the California Labor Code.
Criminal Penalties for Salary Misclassification
When an employer or worker willfully enters into an independent contractor arrangement in order to evade taxes, it’s a crime. In fact, it’s a felony – and people can go to prison for up to five years of it (plus be subjected to up to $100,000 in fines). Failure to meet wage statement and recordkeeping requirements in the state of California is a misdemeanor, which can result in up to a year in jail and fines of up to $1,000.
Damages for Retaliation
Though this doesn’t happen very often, it’s important to know that employers are not allowed to retaliate against workers who file complaints about violations of wage laws and regulations. If they do, employers can be held responsible for paying the employee damages. For example, if a company fires a worker for making a complaint about misclassification, the company may have to pay that worker’s wages from the time they were fired.
Do You Need to Talk to a Lawyer About an Employer That Intentionally Misclassified You as a Worker?
If you’ve been misclassified and need resolution, we may be able to help you. Call our office at 818-230-8380 or fill out the form below for a free consultation now.