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socrateaser
socrateaser, Lawyer
Category: California Employment Law
Satisfied Customers: 33511
Experience:  Retired (mostly)
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I am a business owner, citated and will be penalized by California

Customer Question

I am a business owner, citated and will be penalized by California Dept of Industrial Relations for misclassifying front desk person to be 1099 employee. Is there any option for me now to appeal the decision?
Submitted: 1 year ago.
Category: California Employment Law
Expert:  socrateaser replied 1 year ago.
Hello,

Was this decision made after an Employment Development Department audit, or after a DLSE wage claim hearing?

Customer: replied 1 year ago.

After DLSE asked me to bring documents such as time calendar, 1099 copy, DE9 forms, W-2s yesterday, the commissioner then wrote the citations and fines.

Customer: replied 1 year ago.

They came to my business premise in May without appointment and inspected some documents. It may be risen from a former front desk person asking for overtime pay.

Expert:  socrateaser replied 1 year ago.

Okay, thanks.

You current recourse is to request a hearing before a DLSE administrative law judge. The paperwork you received from the commissioner should have advised you of your right to a hearing.

Did you receive that information?

Customer: replied 1 year ago.

Yeh, I can appeal these citations. But can I know the chances of penalty reducing or revision, since I have two W-2 employees and there is no clear cut line of defining 1099 and W-2s, so I put them as 1099. Is there a chance that I will be penalized more since I was told she just citated the last 6 month's finding, as I only have 6 months' record.


Thanks.

Expert:  socrateaser replied 1 year ago.
But can I know the chances of penalty reducing or revision, since I have two W-2 employees and there is no clear cut line of defining 1099 and W-2s, so I put them as 1099. Is there a chance that I will be penalized more since I was told she just citated the last 6 month's finding, as I only have 6 months' record.

A: California law is extremely hostile to the use of 1099-Misc contractors in circumstances where a W-2 employment relationship should ordinarily exist. If you want to know how a challenge is likely to turn out, use form DE 38, and as objectively as you can, try to determine how you would rule, if you were to review all of the factors in the DE 38 form. If you determine that this person is an employee, then while you could make the appeal, you will almost certainly lose, and then the best you can do is to ask the court for some relief, because you believed that the person qualified as an independent contractor.

I don't know how great your fines are, but DLSE is likely to permit you to pay the fines in installments. That is probably the best you can do under the circumstances.

I don't think you lose anything by appealing -- but if that DE 38 form appears to strongly favor the worker as being an employee, then the result will be little different from your current citation and fine -- unless you can produce records showing that the worker was employed for a reduced number of hours or that the employment started more recently than the DLSE has determined.

I realize this is a terrible punishment -- frankly, it happens every day, because most employers just don't realize how easy it is to get caught and fined.

Please let me know if I can be of further assistance.
Customer: replied 1 year ago.
Thanks a lot , it is really helpful
Expert:  socrateaser replied 1 year ago.
You're welcome and good luck!
Customer: replied 1 year ago.
Hi, few more things:
I was cited for 25 counts of 226.3 violation at $250 each, and $6250 total. Two of the employees were newly hired this year and was never issued 1099 before, what can I do , or if I can reclassify them retrospect ly to W2 starting the time they were employed this year?
Expert:  socrateaser replied 1 year ago.
Labor Code 226.3 provides in part, "In enforcing this section, the Labor Commissioner shall take into consideration whether the violation was inadvertent, and in his or her discretion, may decide not to penalize an employer for a first violation when that violation was due to a clerical error or inadvertent mistake."

This is the sort of thing that the judge in an appeals hearing could consider. You could possibly argue that since you believed all of your workers were 1099-Misc workers, that your failure to issue an appropriate payment statement in accordance with Labor Code 226 was inadvertant, and ask that the judge waive the fine.

I can't promise that the judge will grant your request. But, you could also ask the officer who cited you to waive the fine, in exchange for your not appealing the current decision. And, if the officer refuses, you could appeal and then try to get the judge to grant the waiver.

Hope this helps.

P.S. A positive rating of my services would be greatly appreciated. Otherwise, I'm helping you for free!
Customer: replied 1 year ago.
Thanks for the input regarding the appeal.
Is it possible for me to retrospectly reclassify the two employees hired this year to be W-2?
Expert:  socrateaser replied 1 year ago.
Yes. In fact, the IRS will require that you do so, if it finds out that you may have misclassified the workers as 1099-Misc., rather than W-2.

Hope this helps.
Expert:  socrateaser replied 1 year ago.
Do you have any further questions?

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