(a) If the director determines that an individual or entity that is reporting employee wages pursuant to Section 1088 or other applicable sections is not the correct employer of the employees whose wages are reported, the director shall determine the correct employer and, subject to this section, shall apply the provisions of this code to the correct employer.

(b) Upon a determination made under subdivision (a), the director shall give notice of the determination pursuant to Section 1206 to both of the following:

(1) To the individual or entity reporting employee wages of the determination that the individual or entity is not the correct employer of the reported employees.

(2) To the individual or entity determined to be the correct employer of those reported employees.

The notice shall contain a statement of the facts and circumstances upon which the determination was based. An individual or entity so noticed shall have the right to petition for review of the determination within 30 days of the notice, as provided in Section 1222.

(c) During the pendency of a petition for review pursuant to subdivision (b), the individual or entity responsible for reporting employee wages pursuant to Section 1088 or other applicable sections shall be determined as follows:

(1) When an individual or entity that has reported employee wages appeals a director’s determination that it is not the correct employer of the employees whose wages were reported, that individual or entity shall continue to so report employee wages, provided the employees in question are still on its payroll, until a decision on its appeal is final, whether or not the individual or entity determined to be the correct employer by the director appeals that determination.

(2) When the individual or entity determined by the director to be the correct employer appeals that determination, but the individual or entity determined not to be the correct employer does not appeal the director’s determination, then the individual or entity determined to be the correct employer by the director shall report employee wages from the date it received notification pursuant to subdivision (b), and, provided the employees in question are still on its payroll, shall continue to do so at least until a decision on its appeal is final.

(d) When a director’s determination that an individual or entity is the correct employer of employees whose wages have been reported by another individual becomes final:

(1) The individual or entity so determined to be the correct employer may be assessed for any underpayment of employer contributions pursuant to Article 8 (commencing with Section 1126) of Chapter 4 of Part 1 of Division 1. No assessment shall be issued for any period prior to the effective date of this section based on which individual or entity is the correct employer, unless the correct employer committed fraud in violation of this part.

(2) The individual or entity which had reported employee wages prior to the finality of the director’s determination of the correct employer of the employees whose wages were so reported may file a claim for refund for any overpayment of employer contributions pursuant to Section 1178. No claim for refund may be filed for any period prior to the effective date of this section based on which individual or entity is the correct employer unless the department has issued an assessment based on fraud pursuant to paragraph (1).

(Added by Stats. 1986, Ch. 793, Sec. 2. Effective September 15, 1986.)