Independent Contractor Reporting

Government agencies are taking a much closer look at the business use of Independent contractors, the reporting of the use of independent contractors and the reporting of monies being paid to independent contractors. Fines have increased and new laws have been put in place regarding the misclassification of an employee as an independent contractor. The potential liabilities and penalties are significant.

Independent Contractor Reporting

Any business or government entity that is required to file a federal Form 1099-MISC for services received from an independent contractor is required to report specific independent contractor information to the Employment Development Department (EDD). This information will be used to locate parents who are delinquent in their child support obligations. The independent contractor reporting requirements apply if you hire an independent contractor and the following statements all apply:

•You are required to file a Form 1099-MISC for the services performed by the independent contractor.

•You pay the independent contractor $600 or more OR enter into a contract for $600 or more.

•The independent contractor is an individual or sole proprietorship.

If all the above statements apply, you must report the independent contractor to EDD within 20 days of paying/contracting for $600 or more in services. You are not required to report independent contractors that are corporations, general partnerships, limited liability partnerships, and limited liability companies.

How to Report:

You may use any of the following to report independent contractor information:

•Submit a Report of Independent Contractor(s) (DE 542) electronically with the expanded e-Services for Business (Minimum browser requirements: Internet Explorer 6.0 or Netscape 7.2); or

•Submit a paper Report of Independent Contractor(s) (DE 542). A fill-in DE 542M can be downloaded if you have the Adobe Reader. Forms may also be ordered on the Internet Order Form or by calling our toll-free number (888) 745-3886 or visiting your nearest Employment Tax Office. You may also print your data directly from your computer to the DE 542 by following the Print Specifications.

•You may create your own form with the required information.

Independent Contractor Determination

There are four tests to aid in the determination in Independent Contractor vs Employee. The four tests come from four different agencies.

  • Employment Development Department (EDD)
  • Division of Labor Standard Enforcement (DLSE)
  • Internal Revenue Service (IRS)
  • US Department of Labor (DOL) 

Risks for misclassification 

  • California State Unemployment Insurance
  • Federal Tax Penalties
  • California Minimum Wage Offenses
  • Failure To Pay Overtime to Non-exempt Employees
  • Wage Statement Violations
  • Missed Mea and Break Penalties
  • Pay Period Violations
  • Additional Sanctions 

For more information and/or reporting assistance contact us at 661 834-7411 and ask for the Business Services Group.