In California, as it is with essentially any state, the laws for employing, paying, and recording usage of an independent contractor vary greatly from those of simply hiring a company employee. In many instances, usage of independent contractors can alleviate strains placed upon you or your business due to employment laws, especially the strident restrictions and prohibitions of California’s. Though, applying the title of an independent contractor to someone does not make them an independent contractor. So what does? What are the laws and stipulations of hiring an independent contractor? How will it help my business in California to know and understand the usage of these laws? Keep reading for the need to know laws and legal information on independent contractors in California.

The Legal Definition of an Independent Contractor in California

Classifying an independent contractor could be one of the most important aspects of the legal relationship with the person at hand. Many fall victim to the belief that by operating under certain conditions they will be unaffected by misclassification penalties, but this is simply not true and it is important as a business owner to learn the definitions used by governmental agencies in their definition of independent contractors. One of the most important factors in determining if someone is an independent contractor or employee is the right to manage the manner and means of accomplishing the desired result. In California, courts and agencies have generally applied common law practice in determining the status of independent contractors.

Compensation, Federal Taxes, and Hourly Wages of Independent Contractors

As mentioned previously, the laws for compensation, taxes, and hourly wages of independent contractors varies greatly from that of company inducted employees. Recently the California Supreme Court have applied six further conditions as to determine the status of independent contractors and have discarded the common law test as the sole means of definition. This decision has impacted not only worker’s compensations but other employee-related matters also.

The IRS is responsible for determining the relationship between a company and employee on a federal level and misclassification on a company level can lead to your business incurring large government penalties as well as employment taxes. Misclassification can also be particularly troublesome for businesses at this level as they may lead to aggressive audits and financial penalties by the IRS. During wage claim processes or audit proceedings, the California Labor Commission is responsible for determining the true relationship between an individual and company. This is commonly done by using the right to control as well as several other factors as determined by the California Supreme Court.

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The W-2 tax form is the annual statement issued by the employers to all their employees outlining details of the total income for the year that the employee has earned and the portion of income that has been withheld for the federal tax and other forms of income tax. Employers are required to provide copies of the Form W-2 to the Social Security Administration for the purpose of sharing the data with the Internal Revenue Service.

Workers are required to report all their annual earnings from their job or jobs during a particular year. To help facilitate this process, the IRS commissions all companies to provide their employees with a Form W-2, a Wage and Tax Statement, to enable employees to file their taxes at the end of the year. According to the law, the W-2 tax form must be hand-delivered or mailed to the employee no later than January 31st reporting earnings, salaries, and tips earned in the previous calendar year.

Common Problems Relating to Form W-2

1. Not receiving your Form

If you don’t have the form by mid Feb, you should consult with your employer to know the reason. It is advisable to request for a printed copy of the form to take with you home. Otherwise, if you fail to get the Form W-2 by February 14th, you should contact the IRS for help.

2. How to correct wrong information on your W-2 form

In case you find some information that is wrongly showing on the form, you should request your employer to make the necessary corrections. Employers are given up to March 31, to file the W-2 tax forms with the respective Social Security Administration. During this time, your employer can fix any errors or mistakes in your W-2 form before it is filed with the federal government.

3. Employers refuses to issue you Form W-2

First, you are advised to make efforts and convince the employer. If your efforts to have the form are futile, then you should call the IRS using 1-800-829-1040. The IRS advises that you should have the following information ready:

–The employer’s name and complete address, including zipping code, the employer’s identification number (if known), and telephone number
–Your name and address, including zipping code, Social Security number, and telephone number; and
–An estimate of the wages you earned, the federal income tax withheld, and the dates you began and ended employment.

Employers who fail to remit, pay or report employee salaries are a hot button for the federal agency.

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