A general contractor classifies its on-site framer as an independent contractor and issues a 1099-NEC instead of a W-2. If the framer is later determined to be a W-2 employee under AB-5 and federal common-law tests, the general contractor will likely be liable for:
Explanation
Misclassification triggers multiple, stacking liabilities: federal employment taxes under IRC §3402/§3101/§3111 with IRS §3509 reduced rates only if non-willful, FUTA under IRC §3301, California PIT withholding, SDI and SUI through EDD (with §1735 personal liability for responsible officers), Labor Commissioner penalties under Labor Code §226.8 ($5,000–$15,000 per violation or $10,000–$25,000 for a pattern), wage statement penalties under §226(e), and uninsured-employer workers' comp exposure under Labor Code §3700.5 and §3722. A signed acknowledgment is irrelevant under Labor Code §2775(a) (labels disregarded). The $250 information-return penalty is a fraction of total exposure.
Law Reference: IRC §3508 / Labor Code §3353Practice all 690 questions free — no signup required.
Related questions on this topic
- Under Bus. & Prof. Code §7071.11, when claims against a contractor's $25,000 license bond exceed the bond's penal sum, the bond proceeds are distributed in which order of priority?
- Instead of filing a contractor's license bond, a licensee may deposit cash or equivalent securities with the State Treasurer under Bus. & Prof. Code §7071.12. To replace the $25,000 license bond entirely with cash, the licensee must deposit:
- A Responsible Managing Employee (RME) differs from a Responsible Managing Officer (RMO) in that an RME must:
- On a private construction project, the owner is generally entitled to withhold from each progress payment a 'retention' (retainage) of up to:
- Effective January 1, 2023, the California Contractor License Bond was increased to:
- When is a Bond of Qualifying Individual (BQI) required, separate from the standard $25,000 Contractor License Bond?
Last reviewed: · editorial process