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SCCA Magazine |
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SCCA Magazine May - June 2010 |
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Independent contractors in the construction industry
For years employers have had many reasons to
consider those that provide them services as
independent contractors.
The benefits include:
● No payroll taxes or unemployment benefits
● No
benefits need be paid to independent
contractors
● Litigation for wrongful termination
or discrimination is greatly reduced
● Services
can be terminated at any time
● No tools or work
area must be supplied
The most common
circumstances California employers face with
independent contractors is a claim to the
Employment Development Department (EDD) that
they believed they were employees and should be
entitled to unemployment. Application for
benefits often triggers an audit by the EDD or
the Department of Labor (DOL).
Recently,
“random” audits by EDD and DOL regarding
independent contractors have risen greatly.
Construction contractors are singled out with
onerous standards beyond those of other
industries. Contractors that retain
subcontractors must determine that the sub has a
contractors license or EDD might consider the
sub to be an employee and determine taxes are
payable by the contractor.
Generally at audit,
EDD reviews all disbursements to those issued a
1099 to determine if they were independent
contractors and then adds an additional burden
on those issued to subcontractors to determine
if the sub is a licensed contractor. EDD then
examines other disbursements, especially those
categorized as outside labor and asks for proof
the individual is indeed “independent.”
To
qualify someone as an independent contractor be
surethe person has a license to perform the
service they are providing and provide those
services to others. The independent contractor
must be allowed to perform at will without
supervision or restrictions. Other things
examined in an audit are whether tools are
provided and if the person is represented to be
an employee.
These are simplified. To protect
yourself, at a minimum, obtain a written
independent contractor agreement that specifies
the person can provide the service without set
hours. Be sure to specify the person understands
they are not an employee. Obtain written
evidence of a license to do business in the
state. Don’t list the person on your employee
roster or pay them as you would an employee. Be
sure to record their employer ID number and
issue them a 1099.
– By
Glenn M. Gelman, CPA, MST, CFF, is managing director of
Glenn M. Gelman and Associates
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