Many employers mistakenly or intentionally classify their employees as independent contractors or as exempt employees. As explained below, misclassifying an employee as an independent contractor or as an exempt employee can be costly.
Independent Contractor Misclassification
Employees who are misclassified as independent contractors face serious problems. When an employee is misclassified as an independent contractor, the employer is not providing unemployment insurance or workers’ compensation, and is not paying Social Security and Medicare taxes for the employee. This often results in the employee being left with a large tax bill. In addition, employers who misclassify their employees as independent contractors often do so to avoid complying with wage and hour law requirements, such as paying employees for overtime or even the minimum wage. In these circumstances, the misclassified employee may be entitled to recover wages that they were not paid.
Exempt Employee Misclassification
To be properly classified as an exempt employee in California, the employee must:
- Be primarily engaged in duties that meet the test of the exemption;
- Customarily and regularly exercise discretion and independent judgement in performing those duties; and
- Earn a monthly salary equivalent to no less than two times the California minimum wage for full-time employment. California Labor Code § 515.