Nail Salon Fined $1.2 Million for Misclassifying Workers as Independent Contractors

Employers risk major penalties when misclassifying employees.

Just because you want a worker to be an independent contractor, or the worker prefers being an independent contractor, does not make it so. Worker misclassification is the practice of knowingly misclassifying an employee as an independent contractor. And liability in this area became even more complex when the California Supreme Court recently set forth a new independent contractor test for wage and hour violations.

Here is a prime example of the penalties employers risk when misclassifying employees. The California Labor Commissioner’s Office recently issued more than $1.2 million in citations against a Temecula nail salon for misclassifying workers as independent contractors — instead of employees — and for failing to properly pay workers.

Labor Commissioner investigators audited over three years of the nail salon’s business records and determined that the workers were paid only for each service provided, instead of the total hours worked. Enforcement investigations typically include a payroll audit of the previous three years.

The average worker shift was 9.5 to 10 hours per day, but workers weren’t paid overtime or given proper meal and rest breaks.

The $1,242,227 citation included $670,040 payable to workers and the remainder in civil penalties

The violations included:

  • Misclassification of workers as independent contractors;
  • Failure to pay minimum wage;
  • Failure to pay overtime;
  • Failure to provide final paychecks as required by law;
  • Improperly paid rest periods;
  • Meal period violations;
  • Not providing proper itemized wage statements; and
  • Failure to carry valid workers’ compensation insurance as required by law.

“Using misclassification as a business model not only denies workers of their rightful pay, but also gives the employer an unfair advantage over law-abiding businesses,” said Labor Commissioner Julie A. Su, in a statement.

In 2014, the Labor Commissioner launched a statewide, multi-lingual “Wage Theft is a Crime Campaign.” The California Chamber of Commerce joined this campaign, which provides information to both employers and employees about wage theft — bad actors not only hurt employees but also hurt law abiding employers who are undercut and disadvantaged.

Gail Cecchettini Whaley, CalChamber Senior Employment Law Counsel

CalChamber’s free Eight Steps for Examining Your Wage Practices white paper outlines key steps to keep in mind when planning for and starting a self audit. CalChamber members can download the white paper here.

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