CALIFORNIA EMPLOYEES AND SUBCONTRACTORS

Filing Requirements for Employers

California businesses are required by Federal law to report all new employees and certain independent contractors to the EDD within 20 days of hiring or entering a contract. The EDD may assess a $24 penalty for each failure to report either a new employee or independent contractor. If the employer and employee conspire to omit filing the required information or issue a false or incomplete report, the EDD may assess a penalty of $490. Following is a review of the requirements for each.

Employees

All employers must report the hiring or rehiring of all workers within 20 days of hire on Form DE-34 to the EDD. This includes all shareholders, full-time, part-time or seasonal workers, living in or out of California, even if employment is discontinued prior to the 20 days. A copy of the employee's Form W-4 can also be filed instead. However, if you use the employee's Form W-4, you must write the date of hire and the employer's state ID number on the copy of the Form W-4.

The DE-34 can be filed on-line at https://eddservices.edd.ca.gov/index.html , faxed to 916.255.0951 or mailed to: Employment Development Department, PO Box 997016, MIC 23, West Sacramento, CA 95799-7016. For further information, you can call our office (818.712.0300) or the EDD at 800.796.3524.

Independent Contractors

All businesses must report individual independent contractors qualifying for a 1099 within 20 days of making a payment or entering a contract for $600 or more within a calendar year on Form DE-542. The independent contractors must be reported annually. So if the business reported an independent contractor in 2004, the contractor must be reported again in 2005 if the requirements are met for that year.

While there is a penalty for failing to report an independent contractor, there is no penalty for reporting a worker who is not an independent contractor. As a suggestion, after preparing your Form 1099's for 2004, enter all of the names on Form DE-542 and file it. Then as you hire new independent contractors throughout the year, you can report them at that time.

If the independent contractor refuses to provide you with a Social Security number, enter 000-00-0000 on Form DE-542. Do not use the federal or state tax ID number. If you do not know when the independent contractor will reach the $ 00 threshold, then check the "ongoing" box on the form. If you report an independent contractor on Form 1099-MISC, you must also report the contractor on Form DE-542. Please note that if an independent contractor is a corporation, partnership, limited liability company or a limited liability partnership, you are not required to report them on Form DE-542.

The DE-542 can be filed on-line at https://eddservices.edd.ca.gov/index.html , faxed to 916.255.3211 or mailed to: Employment Development Department, PO Box 997350, MIC 99, Sacramento, CA 95899-7350. For further information, you can call our office or the EDD at 800.796.3524.

 

* Information obtained from Spidell's California Tax letter, January 2005 Issue.