Memorandum

To: Clients of the Firm

Date: December 26, 2000

Re:   Reports to EDD about Independent Contractors 

A new California law effective January 1, 2001 will require many California businesses to file new reports with the California Employment Development Department (the "EDD"). The new rule (California Unemployment Insurance Code Section 1088.8) is meant to enhance child support collection efforts by helping authorities to locate parents that are delinquent in their child support obligations. Beginning next year, any California business that is required to file a Federal Form 1099-MSC (to report payments to an independent contractor) must also file a Form DE 542 with the EDD.

The report must be filed by any business entity that contracts with, or receives services from, any individual who, as an independent contractor, performs services for $600 or more. Businesses need not file Form DE 542 to report payments made to either employees or other business entities.

The $600 threshold is an aggregate annual amount, meaning that once the total amount of payments to any independent contractor in any calendar year equals $600, the report must be filed. There is no requirement that the form be updated during the year, but it will apparently be necessary to re-file at the beginning of each year for ongoing relationships.

The report must be filed with the EDD within twenty days of the earlier of:

	making payments to an independent contractor totaling $600 or more in exchange for services; or
	entering into a (written or oral) contract with an independent contractor for the payment of $600 or more for services.

The EDD may assess penalties for failure to comply.

To help you prepare these new filings, we are providing a pdf "fill-in form" version specially prepared for our clients. This will permit you to prepare each form on your computer screen, instead of using a typewriter or preparing it by hand.  

Download EDD Form 542 (Fill-In Form)

Michael D. Schley	805-966-2940
Joseph F. Look	805-688-9226
Ian M. Guthrie	805-966-2985
Brett Locker	805-963-4929

 

Instructions for Fill-In Form:

1) Open the form with Adobe Acrobat Reader software, which is available for free download at: http://www.adobe.com/products/acrobat/readstep2.html

 

2) Read the EDD instructions carefully (page 2 of the form).

 

3) To permit multiple uses, do not save over the fill-in form document.