New Legislation Cracks Down on Misclassification of Independent Contractors

Last month, California Governor Jerry Brown signed Senate Bill 459 into law. The new legislation is designed to crack down on the misclassification of workers as independent contractors and dramatically increases the penalties on employers who have been found to have willfully done so.

The new law prohibits the willful misclassification of workers as independent contractors to avoid properly classifying them as employees.

It prohibits charging misclassified workers any fees or making deductions from their compensation where those acts would have violated the law if the individuals had not been mischaracterized.

It gives the Labor and Workforce Development Agency authority to assess penalties and take other action against violators, and requires it to report violators who are licensed contractors to the Contractors' State License Board and it requires the Contractors' State License Board, once notified, to bring an action against the contractor.

The new legislation will subject first-time violators to penalties of $5,000 to $15,000 per violation, in addition to any other penalties or fines permitted by law. Repeat violators can be subject to penalties as high as $25,000 for each individual violation.

Furthermore, the law mandates additional record keeping and notice requirements, and, according to the California Chamber of Commerce, the final bill still falls short of adequately protecting employers that are trying to comply with the law, yet mistakenly misclassify an individual as an independent contractor.

The most important question to ask when determining if a worker is an employee or independent contractor is ultimately how much control the employer maintains over the worker and the specific details of the work. In reality, however, the determination is much more complex and involves over a dozen other factors.

The impact of this bill in the beauty industry will be significant, since common business practices now result in misclassifying employees as "independent contractors" when in fact they should have been classified as employees.

Recent federal legislation enacted also impacts common salon practices. The Durbin Amendment, a last-minute addition to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, took effect October 1, 2011.

This banking reform legislation included a caveat that each credit card processing company must send a 1099 to the federal government for each individual business outlining their gross credit card sales. As a result, in January of 2012 each salon, spa, or any other business will have every credit card transaction reported to the federal government.

Editor's Note: Beginning next month, Fred Jones, Legal Counsel for the Professional Beauty Federation of California, will be penning a regular column, "The Beauty Professional". The goal of his column, and the mission of his organization, is simple: to raise the professionalism of the beauty industry. "The Beauty Professional" will provide helpful insights and recommendations for running a legal and profitable salon business, as well as keeping readers informed and engaged in shaping governing policies that impact the beauty industry.

Fred Jones worked in the California State Legislature for a decade, has practiced law for fourteen years, and has been with the PBFC since its inception in 2000. He and his PBFC partners bring a breadth of experience and expertise relative to the legal, financial and regulatory environment in which all beauty professionals operate. His first column will concentrate on booth rental-based salons, including the serious challenges and rewarding opportunities of this business structure - which will run during January's theme of "Building Your Profession".

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