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Worker Misclassification

The Labor Commissioner is charged with enforcement of worker misclassification and like other provisions of the Labor Code, it gives those affected the right to file a complaint. The definition of willful misclassification is voluntarily and knowingly misclassifying an employee as an independent contractor.

At least ten million workers are classified as independent contractors nationally, an increase of more than two million in just six years. According to the U.S. Government Accountability Office, the number of independent contractors in the total employed workforce grew from 6.7 percent in 1995 to 7.4 percent in 2005. In 2005, there were 10.3 million independent contractors. Independent contractors, in 2005, had an average age of 46 years, were almost twice as likely to be male than female, and almost two-thirds had some college or higher education. Independent contractors were employed in a wide range of industries (such as professional services and construction) and occupations (including sales and management). When employees are misclassified as independent contractors, they lose rights afforded by laws designed to protect workers and may not have access to employer-provided health insurance coverage and pension plans.

When a worker is misclassified as an independent contractor, he or she is not subject to California minimum wage and overtime protection laws. Additionally, the worker has no workers' compensation coverage if injured on the job, no right to family leave, no unemployment insurance, no legal right to organize or join a union, and no protection against employer retaliation. The misclassification of workers as independent contractors creates an unfair playing field for responsible employers who honor their lawful obligations to their employees. The misclassification of workers results in a loss of payroll tax revenue to the State, estimated at $7 billion per year, and increased reliance on the public safety net by workers who are denied access to work-based protections.

What employers should know

On Sept. 8, 2011, the California legislature passed Senate Bill 459 prohibiting the willful misclassification of individuals as independent contractors. The new legislation, enacted on Oct. 9, 2011, creates civil penalties of between $5,000 and $25,000 per violation. The new law will also prohibit charging fees to or making deductions from the compensation paid to those misclassified workers.

What workers can do

Workers who do not receive minimum wages, overtime pay, or pay for meals and breaks because their employer misclassifies them as an independent contractor can file a wage claim with the Division of Labor Standards Enforcement (the Labor Commissioner's Office).

Independent contractor versus employee

Frequently asked questions