Legislation tightening enforcement of California’s child support laws will require all private, state and local employers who use independent contractors to file a new report with the Employment Development Department starting January 1, 2001. The EDD recently issued guidance with specific details about the report, which is designed to help track down parents who aren’t paying child support. Later this summer, the department expects to release Form DE 542 for filing the required information.
Join us this fall in San Francisco for the California Employment Law Update conference, a 3-day event that will teach you everything you need to know about new laws and regulations, and your compliance obligations, for the year ahead—it’s one-stop shopping at its best.
When You Must File
Under the new law, if you do business in California and you use the services of an independent contractor for whom you have to file an IRS Form 1099-MISC, you must notify the EDD within 20 days of either of two events:
- You enter into a contract with the independent contractor worth $600 or more in a calendar year; or
- You make payments to the independent contractor that cumulatively reach the $600 threshold in a year.
You have to report on individuals and sole proprietors, but not on an independent contractor who is a corporation, partnership or limited liability company. It’s best to have all your contractors complete an IRS W-9 form so you can determine whether they fall into one of the categories that require filing an EDD report.
Reporting Details
The EDD clarified a number of other related issues:
- Total amount of contract unknown. If you enter into a contract with an independent contractor for an undetermined sum of money, you may estimate the total value and indicate on the Form DE 542 that the contract is “ongoing.”
- Multiple contracts, continuing relationship. You need to file the report once a year for each independent contractor who earns $600 or more from you. So if you enter into more than one agreement with the contractor during a year, each of which exceeds $600 in value, you have to file the report only at the time of the first contract. However, Eric Wiesenthal, assistant communications director for the EDD, told CEA that employers who have an ongoing relationship with a contractor must file a new report each year the $600 level is met.
- Out-of-state contractors. You must report all independent contractors who reach the $600 threshold even if they live and work outside California.
Contents Of Report
Form DE 542 calls for basic identifying and contact information about your organization and the independent contractor. You also have to disclose the following information about your agreement: the contract start and expiration date, contract amount, and whether the contract is ongoing.
Caution Required
Although the law restricts the EDD from releasing the information you provide, it’s possible the agency could use that data to audit your use of independent contractors. So be sure you can justify the reasons why you have classified the person as an independent contractor. Finally, although the law does not impose a penalty for noncompliance, there is pending legislation that would set a penalty of $24 for each instance of failure to report or late reporting.
For Further Details
You can also call the EDD hotline at (916) 657-0529.