Under-Reporting of Payroll Expenses for Workman Compensation Insurance
Most contractors know that failure to obtain or maintain workers compensation insurance can result in their Contractors’ license being suspended by the Contractors State License Board of California (CSLB). If you, as a Contractor, have employees, you must obtain and maintain workers’ compensation insurance for all of your employees and you must properly report your accurate payroll, and you must maintain your workman’s compensation insurance without any lapses.
Under Business and Professions Code Section 7125.2, if a Contractor fails to do this (including underinsuring their employees by misstating accurate payroll amounts), this will result in “the automatic suspension of the contractor’s license by operation of law.”
A Contractor whose license is suspended under these conditions cannot only not collect any compensation for work performed, but can also be sued for “disgorgement” defined as “the act of giving up something such as the profits obtained by illegal or unethical acts on demand or by legal compulsion”. The court can then order those convicted of disgorgement to pay back illegal profits to “prevent unjust enrichment.”
The CSLB will review the California State Compensation Insurance Fund (CSCIF) records to determine if the Contractor properly maintained coverage for workman’s compensation insurance over the course of the job as well as whether the amount a Contractor paid their subcontractors and employees on the job (payroll records) matched the amount of workman’s compensation insurance coverage.
Section 8152.2 of the Business and Professions Code has two failure prongs: failure to “obtain”; and failure to “maintain.” The Code section goes on to state the effective suspension dates for the two prongs: the failure-to-maintain prong’s effective date of suspension is the date that coverage lapses; whereas the failure-to-obtain prong’s effective date of suspension is the date that coverage should have been obtained. A registrar’s notice is only required if the suspension is for failure to maintain.
If a court finds that a Contractor underreported his payroll to the CSCIF, they will find that the Contractor effectively did not obtain worker’s compensation insurance and the Contractor’s license will be automatically suspended. The Court will judge that “[a] case about underreporting payroll is, by definition, a failure-to-obtain case rather than a failure-to-maintain case.”
If you are under investigation by the State License Board of California (CSLB) due to under-reporting of payroll expenses for workman’s compensation insurance purposes, you should immediately retain the services of an experienced attorney in licensing law.
The Law Offices of Lucy S. McAllister have successfully represented a wide range of California-licensed Contractors being investigated by the CSLB. We have the knowledge and experience to craft a comprehensive strategy and are dedicated to navigating your specific case from the accusation and through the investigation to the disciplinary process and we can legally defend your professional interests.
For additional information or to schedule a consultation about your professional licensing issue, please contact us today at (877) 280-9944.