NO CHILD LEFT BEHIND: Deadbeat Parents and Your Business

Owning a business is never easy. However the one factor that may weigh the heaviest on your mind is your employees. Your workforce will either make or break your business. As the late co-founder of Hewlett-Packard, David Packard stated, “A group of people get together and exist as an institution we call a company so they are able to accomplish something collectively that they could not accomplish separately – they make a contribution to society, a phrase which sounds trite but is fundamental.” As small-business owners confront an evolving and more challenging economy, they are turning to unconventional methods of filling their labor needs. Enter, the independent contractor. While employing independent contractors is an attractive solution, there are a number of pitfalls to tumble over if you are not careful. In California, the Employment Development Department (EDD) requires every single business to report any new employee within 20 days of the start-of-work-date for the New Employee Registry (NER) Program. However, what most small-business owners may be unaware of is EDD’s requirement for any employer that is required by law to file a federal Form 1099-MISC for services performed by an independent contractor, to report the independent contractor’s information to EDD’s Independent Contractor (IC) Program. This is a confusing area in that the requirements for independent contractors are vastly different from a regular employee, and yet an employer is now required to submit the identifying information of an independent contractor in the same manner as it would for a regular employee. What does all of this mean? Why does the EDD require all employers to report its employees’ and independent contractors’ information? How will this affect your business? How can you report all the information that EDD requires? While all of the requirements may seem daunting, we here at TLD Law can offer you the expertise and guidance to successfully navigate these murky waters to ensure that your livelihood continues to thrive for many years to come. The EDD’s New Employee Registry (NER) and Independent Contractor (IC) Programs was established in response to the Deadbeat Parents Punishment Act of 1998. The NER and IC Programs are confidential systems that receive information on all new hires of all employees and independent contractors within California. The information that you provide as the employer is used by state and federal agencies to locate parents who are delinquent in their child support payments as well as establish, modify, and/or enforce any child support obligations that your employees may have. These deadbeat parents can easily fly under the radar and you would never even know, and just like any common criminal, they want to keep it that way. They will do anything to keep the money that they earn to themselves instead of doing the morally upright thing of providing for their child. As such, these deadbeat parents will resort to hustling for their money and advertising their services as an independent contractor in order to avoid the usual hiring process, which increasingly includes background checks. Recognizing this, EDD implemented the IC Program in order to monitor these deadbeat parents and ensure that they meet their legal and moral obligations. By providing all identifying information of your independent contractors, you are not only ensuring that a child receives the vital funding that he/she needs, you also are reducing the amount of welfare payments, Medicaid, food stamps, and Unemployment Insurance claims that a single parent would need to make in order to survive. By reducing all of these, you are assisting your local government keep costs down and in turn this could mean lower taxes for you and your business since these programs would be able to operate more efficiently and effectively due to the decrease in frivolous claims. In order to comply, you have to use EDD’s Report of Independent Contractor(s) (DE-542) form that can be found in any EDD office location. Should you fail to report any new employee to the NER Program or any independent contractor to the IC Program, you could face a fine of $24.00 for each failure to report or $490.00 if the failure to report is an intentional agreement between you and the employee to not supply the information or to supply a false or incomplete report. For questions, please contact Shannon Jenkins at

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