As we reach the end of the first month of 2012, it is critical that employers have the proper classification for their independent contractors. You might be wondering why we are always writing about the importance of properly classifying independent contractor; well, this past year there has been a ton of legislative activity on the importance and the penalties for employers who misclassify independent contractors. For those employers who are still misclassifying your workers beware of the cost of misclassifying, it could hurt your business substantially.

The new laws that took effect on January 1^st have raised concerns for businesses to be careful on who they give the independent contractor status too. In California, S.B. 459 is being enforced, which imposes new penalties for misclassification of independent contractors, up to $25,000 for each violation. With that kind of cost per penalty many businesses can barely afford one violation but two of them could be the deal breaker for that business. Unfortunately those aren’t the only cost that the business will have to pay, they will also have to pay employee benefits and rights governed by the new law. Basically, those who were misclassified have the right to those benefits and rights as an employee because they were really employees of that business instead of an independent contractor.

California had a big year as far legislative activity in 2011 goes. New regulations were put in place governing: credit reports, pregnancy leave and health care, commissions, health care coverage, E-verify, employee leave, gender identity and expression, genetic information, and farm labor. Employers have been struggling with S.B. 469 because of such late notice from the Division of Labor Standards Enforcement, which was released on December 30^th giving employers less than a day to implement it. S.B. 469 requires businesses write a formalized, mandated notices to all employees, so that the employees know exactly what is going on.

These laws apply to the state of California. If you work from a different state or are working in multiple states, be sure to check the legislation across the country, different states have different laws that apply. This is just big heads up for those employers and businesses that are yet to reclassify their independent contractors. Now is the time to do it before they enforce the laws on your business, don’t let it be too late.