Senate Bill 459 Penalizes Employers for Misclassifying Independent Contractors


Effective January 1, 2012, California has passed a new bill that dramatically impacts companies that utilize independent contractors. Senate Bill 459 (SB 459) increases the penalties employers may receive if they willfully misclassify employees as independent contractors in order to avoid employee status for individuals. Additionally, the new law prohibits employers from charging misclassified individuals any fees or making compensation deductions if those acts would have violated the law had the individuals not been misclassified.

Moreover, employers are not the only individuals that may face prosecution under this new law. SB 459 states that any person who knowingly advises an employer to misclassify an employee as an independent contractor will be jointly and severally liable with the employer.

Under this new law, the Labor and Workforce Development Agency holds the authority to assess compliance and issue penalties or other disciplinary actions to employers violating the law. A civil penalty for violation of SB 459 is between $5,000 and $15,000 for each violation. That penalty increases to $10,000-$25,000 if the employer is found to have engaged in "a pattern or practice of violations."

Furthermore, violators of SB 459 must display on their website for one year a notice to employees and the general public announcing that the employer "has committed a serious violation of law by engaging in willful misclassification of employees."

SB 459 follows the recent announcement from the IRS regarding its new settlement initiative, the Voluntary Classification Settlement Program (VCSP), which allows employers to reclassify independent contractors as employees and pay a reduced employment tax. To be eligible for this voluntary program, employers must not currently be under audit.

If you have any questions regarding SB 459 compliance or the Voluntary Classification Settlement Program, contact your BPM representative or email .