The old California Law only required California employees to be reported to the state.
The new law requires independent contractors to be reported too.
So if you’re a California work at home business using independent contractors, you may be affected by this law. If so, it’s totally up to you to report this to ARNOLD, I mean the state of California, or YOU VILL BE TERMINATED! or at least get in trouble.
Here’s an update from attorney Gerald Nehra:
Since 1998, all California employers have been required to report employee “new hires” to the California Employment Development Department (EDD) as part of the “new employee” registry program enacted as part of the federal welfare reform initiative in 1996. The intent of the federal law is to enable states to enhance their child support collection programs. In 1999, California became the first state to enact legislation expanding the reporting requirements to include independent contractors. The relevant statutory is section 1088.8 of the California Unemployment Insurance Code.
¨ The law applies to all independent contractors in California without exception.
¨ Communication to the field is not necessary under the law.
¨ The sales force is not required to take any action, as it is totally a company responsibility
This law went into effect for direct selling companies in January 2002. It requires direct selling companies to report their California independent contractors to California’s EDD, once they have reached a $600 income threshold, within 20 days of the independent contractor reaching the threshold. The law requires companies that file a federal Form 1099-MISC for services performed by independent contractors to report specific information to EDD. This information is summarized below:
1. Companies must report the following about themselves:
a. Federal employer identification number
b. California employer account number
c. Social Security number
d. Service recipient name/business name, address, and telephone number
2. Companies must report the following about their independent contractors:
a. First name, middle initial, and last name
b. Social Security number
c. Address
d. Start date of contract
e. Amount of contract
f. Contract expiration date or that it is an ongoing contract
The information will be used to assist child support agencies with identifying the income sources of parents who are delinquent in their child support obligations. California-based companies must report on all US independent contractors, and non-California-based companies must report on California independent contractors. The form to be used, including the instructions, is available from the agency at www.edd.ca.gov/taxrep/de542.pdf.
A very complete set of frequently asked questions is available at www.edd.ca.gov/taxrep/txicrfaq.htm.
My suggestion is that the person, function or department that has the 1099 reporting responsibility in a company be given this additional task. And, of course, the company’s General Counsel or Network Marketing Counsel should be consulted with any legal questions.
Gerald P. Nehra is an MLM-specialist, private practice attorney. He is one of only a few attorneys nationwide whose practice is devoted exclusively to direct selling and multilevel marketing issues. His 36 years of legal experience include nine years at Amway Corporation, where he was Director of the Legal Division. He can be reached at 1710 Beach Street, Muskegon, Michigan 49441, 231-755-3800. His e-mail address is GNehra@mlmatty.com. You are invited to visit his web site at www.mlmatty.com
© Gerald P. Nehra 2006 - Permission to reproduce WITH ATTRIBUTION granted.
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