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California will add a 10% penalty for “unpaid taxes.” The failure to withhold and pay payroll tax is a misdemeanor criminal offense in California – fine up to $1,000, a year in jail or both.The IRS will add 1.5% to that amount and double it to 3% if your company did not file the appropriate 1099.You will immediately owe back federal and state income taxes which should have been collected from the “employee”.This opens the door for plaintiff’s lawsuits and class actions You will be required to place notification of your violation in an easily accessible place to your workers and the general public.
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California civil penalty of up to $25,000 per incident (range of $5,000 to $25,000 with most being assessed at $25,000).The penalties and financial implications which immediately follow are chilling and may risk the very viability of your company:
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It is therefore much easier for any federal or California agency to simply declare your 1099 workers are misclassified. The legal burden of proof now falls upon the business to prove that an independent contractor meets all three prongs of the new ABC Test created in the recent ruling. How has this fundamentally and permanently changed the rules of employment in California? The new law of California is based upon the legal presumption that any California worker is an employee. The risk of your business being identified and penalized for independent contractor misclassification has substantially and forever changed due to a recent California Supreme Court ruling. There are substantial penalties for misclassification of independent contractors in San Diego and throughout California.