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IES Case Studies

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IC Misclassification Errors and Costly Audits.

Client Profile

A California-based nonprofit organization whose mission is to enrich the lives and expand the horizons of school age children by providing programs in creative activities that build artistic and academic skills, develop discipline, problem-solving skills and decision making, and a sense of achievement and personal worth.

For 50 years, the non-profit had engaged the instructors of their programs as “independent contractors”, however due to the ever-changing worker classification laws in California, they were contacted by the EDD and told the instructors did not qualify as independent contractors and were going to be audited. They needed a compliant solution moving forward and engaged IES as their compliance partner.

“We needed a good solid solution. IES is always able to answer the questions we can’t because we don’t have the time or the industry knowledge that would be needed to become HR experts.”


  • Changing worker classification laws in California resulted in the client being audited by the EDD and having to pay back taxes for the previous 5 years for the workers that didn’t qualify as 1099 Independent Contractors.
  • Lack of expertise in the changing classification requirements in California.
  • Lack of resources and time to dedicate to learning and managing the HR and administrative task that were needed for their Instructor population.

The IES Solution

Helping a valued non-profit organization get out from under an expensive and stressful audit, IES partnered with the client to handle the worker classification compliance and hire the Instructors as the Employer of Record, eliminating the risk of misclassification audits and penalties for the client moving forward.

  • IES created a customized onboarding and payroll program to quickly and seamlessly transition the Instructor population from 1099 Independent Contractors to W2 workers employed by IES.
  • Through its compliance program, IES manages and oversees all employer requirements, such as tax withholdings and filings, payroll, ACA-compliant benefits, Workers’ Compensation, government reporting, etc.

Benefits and ROI

Partnering with IES allowed our client to avoid future misclassification errors along with unnecessary audits and fines. The client experienced the following benefits:

  • Significant Cost Savings: Client had to pay back-taxes and penalties of $15k per worker for improperly classifying their Instructor population, in addition to legal fees that come with hiring an attorney. By partnering with IES, client avoids future audits, penalties and legal fees.
  • Expertise and Compliance: Client now is able to rest assured knowing its partnered with a compliance expert in all 50 states to handle HR expertise and employer mandates.
  • Worker Benefits:  Instructors now receive employee benefits such as medical benefits, 401k, FLSA protection, Worker’s Compensation coverage, etc. while keeping the same flexibility and schedule they enjoyed as Independent Contractors.
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