{"id":2173,"date":"2016-01-19T14:40:39","date_gmt":"2016-01-19T14:40:39","guid":{"rendered":"https:\/\/gillespieinsuranceservices.com\/?p=2173"},"modified":"2025-04-17T12:52:55","modified_gmt":"2025-04-17T12:52:55","slug":"employee-or-independent-contractor-who-is-who-in-california-part-2","status":"publish","type":"post","link":"https:\/\/finfrockweb.com\/gis\/business-insurance\/employee-or-independent-contractor-who-is-who-in-california-part-2\/","title":{"rendered":"Employee or Independent Contractor \u2013 Who is Who in California? (Part 2)"},"content":{"rendered":"<h4>In the last post <a href=\"https:\/\/gillespieinsuranceservices.com\/employee-or-independent-contractor-who-is-who-in-california\/\" target=\"_blank\" rel=\"noopener noreferrer\">(here)<\/a> we talked about Steve. \u00a0Is he an independent contractor or an employee? \u00a0Some of you straight-to-the-bottom-line types\u00a0may be asking, &#8220;What&#8217;s the point? \u00a0Why does it matter?&#8221; \u00a0This blog&#8217;s for you.<\/h4>\n<p><!--more-->Most, if not all, problems arise\u00a0when you, the business owner, treats Steve\u00a0like an independent contractor when he&#8217;s really an employee <a href=\"https:\/\/gillespieinsuranceservices.com\/employee-or-independent-contractor-who-is-who-in-california\/\" target=\"_blank\" rel=\"noopener noreferrer\">(see part one to find out how to make that determination)<\/a>. \u00a0You may have made this decision intentionally as a cost -savings measure, or maybe you didn&#8217;t fully understand of how the system works. \u00a0Either way, there are two\u00a0main\u00a0reasons why it&#8217;s important to categorize Steve correctly:<\/p>\n<ol>\n<li>It can cost you money with your insurance companies.<\/li>\n<li>It can cost you money (or even potentially jail time) with the state.<\/li>\n<\/ol>\n<p>(Yes, I wrote jail time. \u00a0Sorry for the strong language. \u00a0I&#8217;m not trying to be a scaremonger, but there are situations where this is true. \u00a0I&#8217;ll explain.)<\/p>\n<p>First, the insurance companies.<\/p>\n<p>When you call Steve\u00a0an independent contractor when he&#8217;s really an employee you can pay\u00a0a hefty sum at the time of your final audit on your various business insurance policies. \u00a0Here are some examples to explain what I&#8217;m talking about:<\/p>\n<ul>\n<li>At the end of your policy term, your Workers Comp company will conduct a final audit. \u00a0They will consider Steve an employee which will require that you include the amount you paid him as payroll. \u00a0They kindly ask for additional premium to be paid in full. \u00a0If they&#8217;re nice, they&#8217;ll allow financing.<\/li>\n<li>Your General Liability, depending on what type of business you are, may base the premium on your payroll or employee count. \u00a0Like your Workers Comp company, it will conduct a final audit, asking for more money out of you based on Steve&#8217;s existence and\/or payroll. \u00a0If you&#8217;re a contractor, it is more likely that your General Liability policy is based on employee count and\/or payroll than other types of businesses.<\/li>\n<li>Employment Practices Liability Insurance premium is also based on employee count. \u00a0If you have it (and you should), because of the existence of Steve as an employee, you will get stuck with a bill at your final audit. \u00a0If you&#8217;re not sure what EPLI is, check out my blog <a href=\"https:\/\/gillespieinsuranceservices.com\/how-to-protect-your-business-against-employment-practices-claims\/\" target=\"_blank\" rel=\"noopener noreferrer\">here<\/a>.<\/li>\n<\/ul>\n<p><strong>Note: if you only have one Steve, these bills at final audit may not be such a big deal&#8230; but what if you have two Steves? \u00a0Three? \u00a0Four? \u00a0A dozen? \u00a0Final audits can get extreme.<\/strong><\/p>\n<p>The other insurance issue you can experience because of a miscategorization of Steve is a darker problem, and it&#8217;s that of having no coverage when you really wish you did. \u00a0This one will hit you harder when you are a small business and Steve is your only employee. \u00a0In the end, it will cost you more money than you may realize. \u00a0What am I talking about? \u00a0Here&#8217;s an example:<\/p>\n<ul>\n<li>Because you believe Steve is an independent contractor, you never got Workers Comp insurance. \u00a0Steve gets injured and wants to file a Workers Comp claim. \u00a0Uh-oh: no coverage. \u00a0The problem gets worse when Steve gets a lawyer. \u00a0If you do have other employees and a Workers Comp policy in place, the problem of coverage does not exist for you because Steve will merely be treated like the employee that he is and get his injuries paid for. \u00a0Solo business owners, beware!<\/li>\n<\/ul>\n<p>Next: the State of California &#8211; an even darker\u00a0problem than any that arises from the insurance companies.<\/p>\n<p>California doesn&#8217;t like workers to not receive the benefits that are due, and it doesn&#8217;t like to not receive tax revenue that it is owed. \u00a0So, what happens when Steve is erroneously categorized as an independent contractor?<\/p>\n<ul>\n<li>Steve can file a wage claim with the state of California or merely find a lawyer and sue you for all the benefits that he&#8217;s\u00a0entitled to receive as your employee. The benefits include unpaid wages (such as overtime, commissions, bonuses, paid sick days, and paid vacation days), rest periods, meal breaks, and more. \u00a0See here for more detail:\u00a0<a href=\"http:\/\/www.dir.ca.gov\/dlse\/HowToFileWageClaim.htm\" target=\"_blank\" rel=\"noopener noreferrer\">www.dir.ca.gov\/dlse\/HowToFileWageClaim.htm<\/a>.<\/li>\n<li>California\u00a0will want its taxes. \u00a0If it is revealed to the state that you haven&#8217;t been paying Steve&#8217;s payroll taxes, California will politely ask you to pay.<\/li>\n<li>If Steve gets injured on the job, files a Workers Comp claim as an employee, but you don&#8217;t have insurance, you could be subject to up to a year in jail! \u00a0(This is the\u00a0proof that I wasn&#8217;t making up the jail time situation). \u00a0I quote: &#8220;failure to secure workers&#8217; compensation insurance is a misdemeanor punishable by imprisonment in the county jail for up to one year, or by a fine of up to ten thousand dollars ($10,000) or by both that imprisonment and fine. (<a href=\"http:\/\/www.leginfo.ca.gov\/cgi-bin\/displaycode?section=lab&amp;group=03001-04000&amp;file=3700-3709.5\" target=\"_blank\" rel=\"noopener noreferrer\">Labor Code Section 3700.5<\/a>).&#8221; \u00a0Source:\u00a0<a href=\"http:\/\/www.dir.ca.gov\/dwc\/faqs.html#5\" target=\"_blank\" rel=\"noopener noreferrer\">www.dir.ca.gov\/dwc\/faqs.html#5<\/a><\/li>\n<li>Lastly, I&#8217;m no expert on health insurance so I&#8217;ll bring up a\u00a0potential issue: if you have group health for your employees, but didn&#8217;t offer it to Steve because you thought he was an independent contractor, you might not be in compliance with the Affordable Care Act. \u00a0Any health pros want to chime in on this?<\/li>\n<\/ul>\n<p>As you can see, there are some serious problems when your worker is categorized as an independent contractor when he really is an employee. \u00a0What, then, can you do to protect yourself and avoid confusing Steve &#8211; an employee &#8211; for an independent contractor? \u00a0There are two steps as far as I can see:<\/p>\n<ol>\n<li>Before utilizing the service of anyone in your business operation, know which category he or she falls into <a href=\"https:\/\/gillespieinsuranceservices.com\/employee-or-independent-contractor-who-is-who-in-california\/\" target=\"_blank\" rel=\"noopener noreferrer\">(see the first blog I wrote on this)<\/a>.<\/li>\n<li>Correctly categorize your worker as soon as he or she begins working for you.<\/li>\n<\/ol>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In the last post (here) we talked about Steve. [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":3247,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,6,17,7,13],"tags":[2,15,16,18,14],"class_list":["post-2173","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-insurance","category-employment-practices-liability-insurance","category-general-liability","category-liability-insurance","category-workers-compensation","tag-business-insurance","tag-employment-practices-liability-insurance","tag-general-liability","tag-liability-insurance","tag-workers-compensation"],"_links":{"self":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts\/2173","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/comments?post=2173"}],"version-history":[{"count":1,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts\/2173\/revisions"}],"predecessor-version":[{"id":44999,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts\/2173\/revisions\/44999"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/media\/3247"}],"wp:attachment":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/media?parent=2173"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/categories?post=2173"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/tags?post=2173"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}