Copyright© 2000 by School Services of California, Inc.

November 22, 2000

Changes to Child Support
Reporting for Independent Contractor

In September 2000, the Employment Development Department (EDD) informed state and local entities that it was monitoring legislation that would affect reporting requirements for independent contractors. The legislation in question was Assembly Bill 1358 (Shelley, D-San Francisco), which becomes effective January 1, 2001. This bill, as originally introduced, made numerous technical and substantive changes to various California codes relating to child support enforcement. Last year the Legislature passed legislation to overhaul California's child support enforcement that also included adopting penalties for failure to comply with the independent contractor registry that currently exists for the new hire registry.

Under existing law, all employers are required to report newly hired employees to the EDD for child support enforcement, i.e., the "new employee registry" (Welfare and Institutions Code Section 1088.5). According to Assembly Member Shelley, the expansion of what information local agencies must report and the imposition of penalties was necessary to provide an important tool for the collection of child support payments.

AB 1358 contains two provisions that expand existing law to require that school agencies report certain information on Federal 1099 forms to the Internal Revenue Service. Section 1088.8 of the Unemployment Insurance Code has been amended to read, "any service recipient who makes or is required to make a return to the IRS related to payments made to a service provider as compensation for services, shall file with EDD the required information."

Service recipient means any individual, person, corporation, association, partnership, or agent thereof, doing business in this state, deriving trade or business income from sources within this state, or in any manner in the course of a trade or business subject to the laws of this state. Service recipient also includes the State of California or any political subdivision thereof, including public schools and the University of California.

Service provider means an individual who is not an employee of the service recipient for California purposes and who received compensation or executes a contract for services performed for that service recipient within or without the state.

AB 1358 requires a "service recipient" to report all of the following information to EDD within 20 days of making payments that in the aggregate equal or exceed $600 in any year to a service provider:

• The full name, address, and social security number of the service provider
  
• The service recipient's name, business name, address, and telephone number
  
• The service recipient's federal employer identification number, California state employer account number, social security number, or other identifying number as required by EDD in consultation with the Franchise Tax Board
  
• The date the contract is executed, or if no contract, the date payments in the aggregate exceed $600 dollars
  
• The total dollar amount of the contract, if any, and the contract expiration date

If a service recipient fails to fully comply-unless the failure is due to good cause-EDD may assess a penalty of $24 dollars, or $490 if the failure is the result of conspiracy between the service recipient and service provider not to supply the required report or to supply a false or incomplete report.

Public agencies, including schools, that enter into numerous contracts with service providers will note that AB 1358 requires substantially more information for reporting purposes than previously required. The number of contracts a service recipient may have will obviously increase workload.

Legislative efforts will be made to modify Section 1088.8 of the bill as it pertains to public schools because of the burdensome reporting requirements and the fact that existing law contains enough "teeth" to obtain necessary information for child support enforcement purposes.

--Arnold Bray