Q: I have a small solar business. My workers are on 1099, I am the only one on payroll.
One of my workers filed for unemployment last year. the unemployment office penalized me for total $1655 for unpaid tax for October - December 2018. again, clearly I had nobody on payroll on 2018. can they do that?
A: Assuming your business is operating in California, it is very likely you are violating the law by employing your workers as independent contractors. Look at AB5 (Assembly Bill 5) that went into effect 1/1/2020. If you’re not treating them as employees, and paying payroll taxes, WC insurance, etc, you are probably going to get yourself in trouble.
A: I used to train business owners on this area of law (employees vs. independent contractors) because people sometimes feel as though they can decide whether their workers are employees or independent contractors. Unfortunately, business owners don’t get to choose; the law specifies who is an employee and who is an independent contractor based on one of two tests. In my training, I would hold up a pen and tell everyone: “This is a pencil. Let’s sign a contract saying we all agree that this is a pencil. But what happens when the state audits you? They say it is a pen and business owners don’t understand what happened.” The answer is the business owner incorrectly determined up front who can be an independent contractor. This is a hot button with the state of California because the state believes business owners are intentionally trying to harm workers by denying them sick pay and other rights, including worker’s compensation coverage. There may be business owners trying to screw over workers, but I find it is usually just a misunderstanding as to how workers are classified as employees or independent contractors.
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