Big businesses constantly try to find ways to reduce their financial expenses and obligations. Sometimes, they do so at the expense of their employees. It has become an, unfortunately, common practice for businesses to intentionally misclassify workers who are actually employees by forcing them to file tax returns as independent contractors.
Companies save a lot of money by forcing their staff to file their taxes via a 1099 instead of a W-2. Not only do they not have to make any payroll tax contributions on behalf of those workers, but they can also typically avoid the need to carry workers’ compensation insurance for them.
California, in an attempt to crack down on these questionable business practices, has recently changed its law regarding independent contractors. The state now requires that anyone filing a 1099 either has an LLC associated with their operations as a contractor or that they fully incorporate their business.
Many companies won’t change how they classify their workers
Despite the intent to push companies into better compliance with employment laws, the new rule in California could very well create more expenses and obligations for workers already getting the short end of the stick from their corporate employers.
Creating an LLC or incorporating a small business can be both difficult and expensive. Trying to manage the process on your own, as many independent contractors may feel tempted to do, could result in mistakes that have costly consequences in the future. Anyone hoping to create a business will generally benefit from support and guidance from legal professionals.
Creating an LLC or corporation helps with more than just compliance
If you work as an independent contractor in California, you may view these new requirements as just one more expense to cover and hoop to jump through in order to earn your living. However, creating an LLC or corporation can create more protection for you.
As an independent contractor, you may not have the full protection of insurance carried by your employer in the event that something you do causes liability. An LLC or corporation adds a layer of protection for your small business that can help you personally avoid the consequences of claims made against your business by protecting your personal assets from claims by others, including creditors.