Quick look:
- An established non-profit organization was hit with heavy IC misclassification penalties due to California AB5
- IES’s compliant Employer of Record (EOR) solutions prevented future EDD scrutiny
- IES provided ongoing employment and HR support for the organization’s growing workforce
- Impact areas: EOR, risk mitigation, payrolling, HR admin support, workforce satisfaction
The Challenge: Non-compliance with Changing IC Laws Led to Heavy Fines and Legal Fees
A prominent California-based nonprofit that enriches children’s lives through creative activities had paid its instructors as independent contractors (ICs) for decades. But when the state passed AB5 – a complex set of new labor laws – the organization was hit with an unpleasant surprise. The State launched an invasive five-year EDD audit that found the organization’s 60+ instructors no longer qualified to operate as ICs.
Then the news got worse, as the EDD levied a $15,000 penalty – for each instructor. And the substantial legal fees the organization incurred compounded its financial burden even further.
The client learned the hard way that proper worker classification was imperative when hiring in California. With limited expertise in shifting labor laws and a lack of resources to manage IC compliance, the nonprofit scoured the market for an expert to ensure it would never face such fines again. “We didn’t have the time or the industry knowledge to become HR experts,” a representative for the nonprofit said. “But it was clear that IES did.”
The Solution: Guidance toward Compliant Talent Management and Payrolling
IES partnered with the client, conducting thorough discovery and data gathering sessions to ensure a full understanding of the organization’s personnel, risk profile, and classification practices. IES then designed a flexible Employer of Record (EOR) and risk mitigation solution that ensured full compliance with AB5 and all other state and national labor laws – while remaining an appealing solution for the instructor population.
By deploying a customized onboarding and payroll program, IES quickly and seamlessly transitioned the instructors from “1099” Independent Contractors to reclassification-safe W-2 employees of IES. Doing so not only brought the client into compliance with all applicable California laws, it enabled the workers to continue providing their services with the same flexibility and schedule they enjoyed as ICs.
Better still, IES provided – and continues to provide – expert guidance to ensure that the client will never again face the hardship and confusion of EDD audits and penalties. “IES is always able to answer the questions we can’t,” the representative added.
Through this partnership, which is still ongoing, IES does more than just ensure proper classification. IES also manages onboarding, offboarding, timekeeping, payroll administration, tax withholdings and filings, payroll, benefits administration, Workers’ Compensation, HR admin support, and more.
The Results: Compliant Hiring, Payrolling, and HR
Since partnering with IES, the client has realized substantial business advantages:
Avoidance of Future Penalties and Legal Costs
IES’s EOR solution fully mitigates the client’s AB5-related misclassification risk, so it will never again suffer the embarrassment and financial burden of worker misclassification.
Confident and Compliant Growth
Without the threat of another EDD audit, the client has expanded its workforce substantially, engaging hundreds of workers compliantly since engaging IES in 2019.
Comprehensive Ongoing Support
IES’s partnership with the client extends beyond just workforce compliance. IES’s HR expertise covers all aspects of the instructors’ engagements – not just in California, but throughout the U.S.
Worker Benefits
With IES, the client now offers a better experience to its workforce than ever before. Instructors now have access to appealing employee benefits such as medical coverage, 401(k), FLSA protection, Worker’s Comp – all with the same flexibility and schedule they enjoyed as ICs.
Like most businesses, this client never intended to violate any labor laws. But without the expertise on staff to keep up with a changing legal landscape, it wasn’t positioned to prevent – or prepared to react to – the EDD’s audit. “We went through something I wouldn’t wish on any business, especially nonprofits,” the representative concluded. “But thanks to IES, we now have the comfort of knowing we’ll never have to face it again.”
