Not Withholding Taxes from Employee Violates California Labor Law
“I gave my social insurance number and all other necessary documents to the accounting department when I was hired at this resort hotel,” says Fabiola, who was paid hourly. “There is no doubt that I was a paid employee and not an independent contractor.”
After receiving a few paychecks, Fabiola asked why taxes weren’t being deducted. “My manager said it was better for me, that I would make more money this way,” she says. “I didn’t want to make any trouble - I didn’t want to lose my job - so I didn’t ask again.”
Fabiola continued working for about six months, until she was asked to work the graveyard shift. “Again the manager told me that I would make more money so I asked him again about tax deductions,” she says. “He got mad at me and got even madder when I declined to work graveyard.”
Just days after that confrontation, just before Fabiola was getting into her uniform, her manager said that she wasn’t on the schedule. She asked him why she wasn’t working, what was going on? “He told me that business had slowed down and they had to cut back my hours but to please be patient,” she says.
“I called a few days later but this time the manager said I was fired,” says Fabiola. “What had I done wrong? In the six months I worked here I never had a complaint. I called the lady in accounting - she signs the paychecks. I explained to her that I had been fired and asked her why she never took taxes off my checks. She said that I had to speak to the manager.
“I called the manager and said that I had to notify the Labor Department because I have been fired without a reason and I asked him again about my taxes. He replied, ‘It was because you were rude to a customer.’ I knew he was lying.”
Soon after she was wrongfully terminated, Fabiola received a letter from the hotel’s accountant. It said that she was an independent contractor and therefore responsible for all her taxes. And because she has been designated as a contractor rather than an employee, Fabiola has been denied unemployment insurance.
Employers often misclassify their employees as independent contractors to avoid paying payroll taxes, and other labor laws such as the minimum wage or overtime, comply with other wage and hour law requirements such as providing meal periods and rest breaks, or reimburse their workers for business expenses incurred in performing their jobs.
As well, independent contractors are not covered under workers compensation insurance, and are not liable for payments under unemployment insurance, disability insurance or social security.
If your employer is withholding payroll taxes, you can contact the California labor board to seek enforcement of the law, whereas independent contractors must go to court to settle their disputes or enforce other rights under their contracts. Both employees and independent contractors, however, can seek legal help.