When new entrepreneurs start-up a new company here in San Diego, they ask us why they should pay a few hundred dollars for help setting up their new company, instead of just downloading a form and taking the least expensive road.  One specific example that has come to light recently is the choice of how you will classify those who work for you.  The decision of independent contractor or employee as a worker’s classification can be the difference between substantial success and tremendous risk.

Many San Diego businesses want to use the independent contractor designation as it eliminates the need to collect payroll taxes, and pay matching taxes and FICA as well as many benefits.  However, recent events have cost California small to mid-sized business hundreds of thousands of dollars in taxes, fines, penalties and interest for one important mistake:

Classifying someone who does work for your company as an independent contractor, instead of an employee.

For years, there were several independent contractor or employee “tests” published in a case against Microsoft late last century.  They included questions like:

• Do you supply tools or technology that allows them to do the job?
• Do you establish their schedule, and control when they work?

The decision of independent contractor or employee has become much more complex.  These old standards have been recently turned on their heads as California and the IRS search for new tax revenues.  And they’ve found it: a Supreme Court ruling that looks at the nature of the relationship between that provider and your company, and the percentage of their own business that comes from your company.  The higher the percentage of their income that comes from your business, the higher the likelihood that the IRS and the State of California will re-classify them as an “employee” opening you up to writing huge checks for back payroll taxes, FICA, business taxes, penalties, fines and interest.  This one simple mistake can end your promising business.

At the Watkins Firm, we do so much more than create simple corporate documents.  We help you to understand the nature of the decisions and clauses within those documents, and guide you through literally more than 100 questions while you are establishing your new business.  We are your business coach – and like any professional athlete, you can draw on our wisdom, and the experience we’ve gained about the business you are in based upon working with several companies just like yours over our decades of legal service to San Diego.

These are challenging times to start a business, but there is ample opportunity and profit for sharp entrepreneurs.  We want to help you.  We invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.

Learn about all of the strength we can put behind you, and the connections in the industry and associated banking and service companies we can introduce you to.  Learn about important issues such as the decision of independent contractor or employee for the designation of a new worker.  You’re starting a new business, or managing a young one.  We want to help you to survive, grow and prosper.