Instructions For Form De 542 - Completing The Report Of Independent Contractor(S) (Page 3 of 4) in pdf

Q10.

Where do I report?

A10.

Mail to: Employment Development Department

Fax to: (916) 255-3211

P.O. Box 997350, MIC 99

Sacramento, CA 95899-7350

Q11.

What is the purpose of the independent contractor reporting law?

A11.

The information you provide to EDD will increase child support collection by helping to locate parents who are delinquent in

their child support obligations.

Q12.

What type of penalty is charged if the report is late?

A12.

The EDD may assess a penalty of $24 for each failure to comply within the required time frames. Also, a penalty of $490

may be assessed for the failure to report independent contractor information if the failure is the result of conspiracy

between the service-recipient and service-provider.

Q13.

Do I report independent contractors who work in another state? If my business is not in California, do I report the

independent contractors?

A13.

Under California law, “service-recipients” must report “service-providers.” By definition, a service provider is an

independent contractor who provides services (rather than goods) to a business or government entity; a service-recipient

must meet one of these three tests:

Does business in California.

Derives trade or business income from sources within California

In any manner in the course of a trade or business is subject to the laws of California.

If your business/government entity meets one or more of the three service-recipient tests, you must report independent

contractors whose services are performed for any of your business operations that also meet at least one of the three

tests.

Example #1

Your business is headquartered in California and therefore meets one of the service-recipient tests. Your California office

hires an independent contractor (IC) who lives and works in New York. You must report this IC to EDD since the IC

performs services for your California business operation.

Example #2

Your business is headquartered in California and therefore meets one of the service-recipient tests. You also have a

business operation in Massachusetts. The Massachusetts location hires a Massachusetts-based IC to perform janitorial

services in Massachusetts. You do not have to report this IC to EDD since the IC performs services for a business

operation that does not meet any of the service-recipient tests.

Example #3

Your business is headquartered in North Dakota and has a branch office in California that uses ICs. Those ICs should be

reported since the California office meets the service-recipient tests. However, if the North Dakota office hires an IC to

perform services for the North Dakota location, those services would not be reported because the IC performs services for

an office that does not meet any of the service-recipient tests.

Example #4

Your business is headquartered in Indiana and does not have any branch offices in California. Your business registered

with a California state agency to have independent sales agents (ICs) sell your products in California. You must report

these ICs to EDD since they perform services for a business operation deriving income from California and subject to

some California laws, thereby meeting two of the service-recipient tests.

Q14.

Do any other states require independent contractor reporting?

A14.

Yes. According to the U.S. Department of Health and Human Services, Iowa, Massachusetts, Minnesota, New Hampshire,

New Jersey, and Ohio require some sort of independent contractor reporting.

Q15.

Can other states report their independent contractors to California and vice versa?

A15.

No. There are no reciprocal agreements between the states for this purpose.

Q16.

If my business contracts with a service-provider that is a corporation, general partnership, or limited liability company, must

this service-provider be reported?

A16.

No. The legislative requirements only call for the reporting of service-providers who are individuals working as

independent contractors. In general, independent contractors who are sole proprietors are to be reported to EDD.

DE 542FAQ Rev. 2 (8-03) (INTERNET)

Page 2 of 3

Instructions For Form De 542 - Completing The Report Of Independent Contractor(S) Page 3

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