Sole Proprietor - As Needed Help

[subman]

I recently started a surveying & engineering business and have set it up as a sole proprietor. I have a full time career with a public agency and am 5 to 8 years from retirement. I plan to do this as side work (in other jurisdictions) until I retire and then decide to grow/expand if the market allows. In the meantime I would like to operate within the tax/labor laws and don't want to hire employees. From time to time my college age sons will help me (sweat equity for a free college education), but on occasion I would like to be able to hire some help to assist with field survey work and data collection. I assume I would need to treat them as independent contractors to avoid all of the "employee" complications. Does anyone have an agreement that they use for similar situations that they would be willing to share? Any suggested reading material?

[Dave Lindell]

You can only hire people as subcontractors if they have proof of their own worker's compensation insurance. AND you will have to report this to the State (in lieu of their being a "new hire").

You will have to have a Federal Employee number and a State employer number also. You can probably get these on the internet now.

You also have to report new hires to the State in case they owe child support.

It ain't easy being a sole proprietor and doing all your own paperwork.

Surveying is the easy part.

[Jim Frame]

"You can only hire people as subcontractors if they have proof of their own worker's compensation insurance."

This is news to me. Can you cite a statute or regulation requiring this?

My understanding is that Workers Comp is an employer's responsibility. If the subcontractor is a sole proprietor with no employees, then Workers Comp doesn't enter the picture. Furthermore, I'm not aware of any law requiring a contractor to verify a subcontractor's WC coverage. It's good practice, of course, but if it's required by law, I've not run across it.

Every couple of years I get a project for which I retain a couple of subs with specialized skills. Each is a sole proprietor, and neither has any business-specific insurance. The first time my WC carrier, State Fund, audited me, they claimed that these guys were actually employees, and tried to include their fees in my premium calculation. I provided documentation refuting the claim, and State Fund acknowledged the independent contractor status and dropped the subcontract fees from the premium calculation.

I file 1099s for my subs, and no agency has ever approached me about any other reporting requirements related to subcontractors.

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[PLS7393]

As Jim Said, you will need to file a 1099 for your subs., if you pay them.

I have been known to assist another firm myself, and he assists me when I need assistance, so we swap or time with one another. There is no payment between us, and I've been told that is a valid option.

[Dave Lindell]

Get a copy of Form DE 34 Rev. 5 (12-04) [Report of new employees] and information sheet DE 231Y.

And Form DE 542 (7-00) [Report of Independent Contractors] from the Employment Develoment Department, www.edd.ca.gov/taxrep/de34.pdf

DE 542FAQ (8-00) answers a lot of your questions.

California Unemployment Insurance Code Section 1088.5 is the law covering this.

[subman]

Thanks Dave

[Jim Frame]

Yes, thanks -- I was utterly unaware of the DE542 requirement. Now I have to file a couple of delinquent DE542s...

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