California Independent Contractors laws & compensation compliance analysis

California Independent Contractors: What you need to know

Whether a worker is an “employee” or an “independent contractor” is critical when it comes to such important issues as pension eligibility, workers' compensation coverage, wage and hour law, and many other matters. In some situations, federal law will govern, but the question is most often resolved by looking to state law, particularly in areas such as unemployment tax liability, workers' compensation, and state wage and hour requirements.
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California employers that in any year pay $600 or more to an independent contractor must report specific independent contractor information to the Employment Development Department (EDD) within 20 days of first making aggregate payments that equal or exceed $600. The requirement applies if the following three requirements are met:
• The employer is required to file a federal 1099-MISC for services performed by the independent contractor.
• The employer pays the independent contractor $600 or more or enters into a contract with the contractor for $600 or more.
• The contractor is an individual or sole proprietor.
Information reported must include the contractor's full name and Social Security number and the employer's business name, address and phone number, federal employer identification number, EDD employer account number, the date the contract for services was entered or if no date the date payments reached $600, and the total dollar amount of the contract. This information should be reported on form DE 542 (Report of Independent Contractor(s)). DE 542 may be submitted electronically, on magnetic media, or on paper. Additional information is available at http://www.edd.ca.gov/payroll_taxes.
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