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Determination of Independent Contractor Status vs. Employment Are you operating a bona fide business, or are you your clients employee? © Copyright 2006,

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Presentation on theme: "Determination of Independent Contractor Status vs. Employment Are you operating a bona fide business, or are you your clients employee? © Copyright 2006,"— Presentation transcript:

1 Determination of Independent Contractor Status vs. Employment Are you operating a bona fide business, or are you your clients employee? © Copyright 2006, Michael Faklis, Evolutionary Software Systems, All Rights Reserved

2 Handouts Presentation Slides EDD Publication DE 231 Rev 5 (4-04), Information Sheet

3 Who Am I Michael Faklis Computer Scientist Consultant Principal of Evolutionary Software Systems, a California corporation specializing in building adaptable software that can evolve with the changing business environment

4 Who is Michael Faklis Past Board of Directors member and officer of the Professional & Technical Consultants Association (PATCA), representing 300+ consultants in various disciplines Founder and Past Board of Directors member, President, and officer of the Software Entrepreneurs Forum (SEF), representing 500+ entrepreneurs in various disciplines focused on getting independent software products to market

5 Who is Michael Faklis Past Board of Directors member, officer, and chairman of the Legislation and Regulation Monitoring Committee of the Software Services Association (SSA), a collaboration of industry associations and individuals representing the software industry

6 What Am I Not A legal advisor A tax advisor A representative of any government agency

7 Why is Employment Determination Important? Many businesses and individuals do not understand the distinction between independent contractors, consultants, and employees. Some businesses and individuals consciously miss-represent employment status for the sake of opportunity and expediency. Miss-classification can expose the employer/client and the worker to audits and monetary fines and penalties.

8 Terminology Employee Statutory Common Law Independent Contractor Consultant Temporary Worker W2 vs. 1099

9 Historical Background Common Law Common Law Determination Primary Indicia Secondary Indicia Rebutable Presumption Safe-Harbor

10 Things Change Section 1706 of the Tax Reform Act of 1986 Oxford Associates Agenda Senator Moynihans Agenda

11 Things Change, or Do They? The Legal Effect of Section 1706 Legislative Regulatory IRS Ruling EDD Regulations and (revised) The Intention Miss-representation of Section 1706 The Business Effect of Section 1706

12 Who is Enforcing the Determination? Government Agencies Involved Internal Revenue Service (IRS) Franchise Tax Board (FTB) Employment Development Department (EDD)

13 How are parties targeted? Discrepancies in Government Reporting Discrepancy in Employment Tax Reporting Discrepancy in Unemployment Filings Industrial Relations Complaints Unemployment and Tax Audits Direct Indirect

14 References Federal Section 1706 of the Tax Reform Act of 1986

15 References Federal IRS UIPL Ruling From SS-8, Determination of Worker Status … Manual , Technical Guidelines for Employment Tax Issues Publication 15A, Employers Supplemental Tax Guide Topic 762 – Independent Contractor vs. Employee

16 References State of California Code of Regulations Title 22. Social Security Division 1. Employment Development Department [FNA1] Subdivision 1. Director Of Employment Development Division 2.5. Withholding Tax On Wages Chapter 1. General Provisions S Employee Defined, Rules Generally Applicable To Determinations Of Employment

17 References State of California EDD Publication DE 231, Information Sheet, Employment Publication DE 231ES, Information Sheet, Employment Work Status Determination Publication DE 231I, Information Sheet, Services Industry Publication DE 231SE, Information Sheet, Statutory Employees Publication DE 231Y, Information Sheet, Reporting New Employees and Independent Contractors

18 References State of California EDD Publication DE 38, Employment Determination Guide Publication DE 1870, Determination of Employment Work Status … Form DE 34, Report of New Employee(s) Form DE 542, Report of Independent Contactor(s) Publication DE 44, California Employers Guide

19 Contact Information Michael Faklis Evolutionary Software Systems (415) You may download this presentation, complete with notes, from ermination%20of%20Independent%20Cont ractor%20Status.ppt


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