What you need to know about California’s new employee misclassification rules

On April 30, 2018, the Supreme Court of California established new rules for determining whether a worker is an independent contractor (1099) or an employee (W-2). This decision greatly impacts many wage-related requirements for businesses operating in the state such as overtime pay, minimum wage, benefits, documentation requirements, meal and rest breaks, along with other wage and hourly obligations. According to the California Labor Commissioner's website, the misclassification of workers as independent contractors, also known as employee misclassification, costs the state roughly $7 billion in lost payroll taxes each year, which was no doubt one of the main drivers for passing these new rules.

What do event companies need to know about these rules?

According to LASSO 3^rd annual survey results, only 29% of event businesses have reclassified their workforce from 1099 to part-time W-2 employees in order to avoid employee misclassification penalties. If your business falls into the 71% of companies who have not yet reclassified their workforce and if you operate events in the state of California, pay close attention. According to these new rules, you must now be able to demonstrate the following in order to continue operations as-is:

• You can prove (without any doubt) that the crew member is free (contractually and in fact) from the control and direction of your business; AND
• The crew member performs work that is not your usual business; AND
• The crew member has an established independent trade or a business that they customarily engage in.

If the crew member satisfies ALL three of these tests, then they can successfully qualify as an independent contractor in the state of California. However, there is no question that these rules will greatly limit your ability to classify crew as independent contractors moving forward. The bottom line is that if an event crew member is performing work for an event company, they will now most likely qualify as an employee, not an independent contractor in California. In order to avoid the penalties and fees for misclassifying your 1099 workforce, it’s time to consider reclassification.

As you begin to navigate the employee reclassification journey, LASSO is here to help. We have several resources that you can use to not only learn more about the benefits of reclassification, but also give you the tools you need to communicate this change to your crew. Here are a few of these resources:

• Why you should be a W-2 employee: 7 important benefits to communicate to your freelancers
• 3 misconceptions about W-2 crew and how these can impact your events business

Contact LASSO or request a demo today to see how we can help streamline and automate your labor processes and meet employee reclassification requirements.