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TAX TIP 1:
Health Insurance Penalty is coming back (to California)

  • California residents and their dependents must have health insurance starting 1/1/20 or they will pay a penalty of the greater of $695 per person or 2.5% of income (SB78).
  • Why am I sending this info to employers? Because (1) this law is not being broadly advertised so you are in a position to be sure your employees know this is coming and (2) this is a great opportunity for you to consider offering health insurance as a benefit to your employees.
  • The cost of a group plan is usually not that expensive to provide, is a tax deduction to you, and can reduce stress in your employees (and everyone knows employees perform better when their stress levels are lower). To sign-up for an individual plan or a business group plan, go to www.coveredca.com or contact a local health insurance broker to customize a plan for you.

TAX TIP 2:

Sexual Harassment Training due by the end of 2020

  • If you have five or more employees, you are required to provide 2 hours of training & education regarding sexual harassment to all supervisory employees and 1 hour of training to nonsupervisory employees (SB1343).
  • The initial training must be done 1/1/21. After the initial training is completed, you must provide the training to each employee every two years.
  • There are many local HR compliance firms who will put on these trainings for you.

TAX TIP 3:

Got a Retirement plan? If not, you may be managing one soon

  • Employers with more than 5 employees will soon have to offer a retirement plan or sign-up for the state-run CalSavers program.
  • With CalSavers, the employer must withhold 5% of each employee’s gross pay and send that money to the State of California to be invested in a Roth IRA for the employee.  Employees are able to opt-out or change their contribution rate at any time.
  • Employers with more than 100 employees must sign up by 6/30/2020, more than 50 employees by 6/30/21, and more than 5 employees by 6/30/22.
  • If you are going to have to manage a retirement plan for your employees, why not set up your own?  Then the employees can contribute (or not), the employer matching contributions are tax deductible to you, you can max out your own contribution, and it is another great benefit to offer your employees. Your investment advisor can help you set up a plan such as a SIMPLE IRA or a 401k.

TAX TIP 4:

Is your worker an Employee or Contractor?

Many businesses prefer to pay their workers as contractors rather than employees to avoid employee-rated expenses such as paid sick leave, overtime, rest periods, payroll taxes, minimum wage, benefits, labor protections, and worker’s comp. California knows folks want to avoid these costs so it has “tests” that employers must pass to be able to call someone a contractor. The “old rules” were mostly about control – if you had a significant amount of control over how the worker did their job, they were an employee, if not, they were a contractor. But starting 1/1/20 California is implementing new more stricter rules about who can be a contractor. But, in good government fashion, the old rules didn’t go away. So, some workers are under the old rules, some are under the new stricter rules, and some are in between.  What fun to be an employer! Sexual Harassment Training due by the end of 2020

  • Who gets the old (easier) rules? (aka the ‘Right To Control’ or the Borello rules)

    Workers who are properly licensed physicians, surgeons, dentists, podiatrists, psychologists, veterinarians, insurance brokers, lawyers, architects and engineers, private investigators, accountants, registered securities broker-dealers and investment advisers, some direct sales salespeople.

    Who gets a hybrid approach?

    Many industries with strong lobbies were able to get a carve-out from the new law. These workers follow the old test with a few add-ons. The add-ons include: maintain a business location separate from the hiring firm, have a business license (e.g. City business license), set their own rates/hours for services, have more than one customer, and provide independent judgment performing their services.

    These workers include: marketing professionals, travel agents, human resource administrators, graphic designers, grant writers, fine artists, photographers, and some freelance writers.

    Who gets the new (stricter) rules? (aka the ‘ABC test’ or the Dynamex rules)

    Everyone else including actors, musicians, janitorial staff, truckers, franchise owners, gig economy workers (e.g. Uber/Lyft/Door Dash), and translators.

    Who gets the business to business exemption?

    Service providers who have a verifiable business to business relationship are able to remain as independent contractors assuming they pass the old rules and a number of additional criteria including control of their work product, multiple customers, written contracts, separate business location, and advertising.  (E.g. if you hire Cromwell to do your bookkeeping, then we would qualify under the business to business exemption and can remain an independent contractor to you.)

    What about barbers?

    There is a special exemption for barbers, electrologists, cosmetologists, and estheticians. These workers must meet the rules under the hybrid approach above, plus set their own rates, process their own payments, be paid directly by clients, set their own hours/# of clients, schedule their own appointments, and issue a 1099 to the salon owner from which they rent their chair.

    What about construction subcontractors?

    They follow the old rules with a number of add-ons including the subcontract must be in writing, the subcontractor must be licensed, separate business location, control of how the work is performed, must be properly insured, and others.

    Of course, there are exemptions…

  • Who gets the business to business exemption?

    Service providers who have a verifiable business to business relationship are able to remain as independent contractors assuming they pass the old rules and a number of additional criteria including control of their work product, multiple customers, written contracts, separate business location, and advertising.  (E.g. if you hire Cromwell to do your bookkeeping, then we would qualify under the business to business exemption and can remain an independent contractor to you.)

    What about barbers?

    There is a special exemption for barbers, electrologists, cosmetologists, and estheticians. These workers must meet the rules under the hybrid approach above, plus set their own rates, process their own payments, be paid directly by clients, set their own hours/# of clients, schedule their own appointments, and issue a 1099 to the salon owner from which they rent their chair.

    What about construction subcontractors?

    They follow the old rules with a number of add-ons including the subcontract must be in writing, the subcontractor must be licensed, separate business location, control of how the work is performed, must be properly insured, and others.

    The explanations above are very general and Cromwell is not qualified to provide worker classification advice.  You should contact a local employment law expert to get more information about your specific situation.

     

Madelyne Cromwell, Cromwell Tax and Bookkeeping

Sonoma County Executives Association  .  www.scexecs.com  .  (707) 230-5404