Frequently Asked Questions
This is a list of frequently asked questions, based on the search terms people have used to find my site. They appear in no particular order.
Independent Contractors
- Are independant contractors required to have their own liabililty insurance?
Generally no. However, you may choose to NOT work with independant contractors who don't carry their own insurance, especially if they are providing services which would be expensive for you to insure yourself (for example, construction). If they don't have their own coverage, you may be responsible for the costs of covering them yourself. See Employee vs. Subcontractor: What's the difference, and why you should care for more information on this issue and check with your insurance provider - Do I have to carry worker's comp insurance for 1099 vendors?
Most insurance companies will require that you provide worker's comp insurance for anybody you issued a 1099 for, unless you have a certificate of insurance from them showing they had their own coverage. Since policies are not required for sole proprietors with no employees of their own, they often won't have their own coverage. Rates are generally very low for people who provided clerical or similar work, but can get quite high for other categories with more risk of injury. Your insurance audit will ask that you list out what you paid subcontractors; however, you do NOT have to cover materials or reimbursements, so make sure any bills you get show those expenses separately, and track them separately in your books. - Who do I need to give a 1099 to?
You should give a 1099 to any vendor who is not incorporated that you paid more than $600 for services to during any calendar year. You do not need to include the cost of materials or reimbursements on the 1099 if the vendor broke those expenses out on their bills. You do not need to give a 1099 to anybody who is incorporated. except lawyers; for some reason the IRS thinks all lawyers should receive 1099's. You can download the instructions for 1099's from the IRS website for more information about who should receive a 1099. Have subcontractors fill out an I-9 Request for Taxpayer ID - also available from the IRS website - BEFORE you start paying them, because it's a lot easier to get the information then compared to January with a filing deadline approaching. If a vendor thinks they are incorporated but you don't, you can check using the Mass. Corporate Database. If a vendor refuses to fill out an I-9, DON'T work with them. And please remember, the information on an I-9 or a 1099 is confidential - keep them in a secure area and shred anything you're throwing away. - Why should I bother doing 1099's?
Giving someone a 1099 helps confirm the subcontractor relationship and gives your business legal protections. For example, if someone you paid as a subcontractor gets into trouble with the IRS and claims you're responsible for paying their FICA, the fact that you issued a 1099 will help in your defense. However, just doing the 1099 will not be enough to show there was no employee relationship; you could still be liable if it's found you misclassified the person.
Employees
- How many hours does someone need to work before
I have to have workers comp insurance?
As soon as you have ANY employees, for ANY number of hours, you are required to have workers compensation insurance. The first quarter after you have any payroll, you will also be required to pay SUTA (Massachusetts Unemployment Tax). - I'm a nonprofit, exempt from FUTA. Do I still
have to pay SUTA?
Although nonprofits are exempt from FUTA (Federal Unemployment Tax), they are not exempt from SUTA unless they self-insure (in Massachusetts, this option is only available to nonprofits). Self insuring means that your organization maintains its own cash reserve to cover unemployment benefits; it must then pay the state back dollar for dollar for any amounts former employees collect, each quarter. It is generally much better to pay in to SUTA, because you can plan and budget for that; self-insuring could result in sudden unexpected expenses. And remember, even if you terminate an employee with cause, they may be able to collect unemployment insurance, which you will then be responsible for reimbursing the state for.
Quickbooks Usage
- How do I change someone from a subcontractor
to an employee or vice-versa?
The best thing to do in Quickbooks is to make a new vendor or employee. So if you had a subcontractor named John Smith, but now he's an employee, make an employee named John J. Smith, or John Smith - employee. You can control how his name prints out on his checks when you enter his information into Quickbooks, but you can not change a vendor into an employee or an employee into a vendor - you need to track them separately. - How do I track subcontractors in Quickbooks?
You should enter their bills or payments as multiple line items, using separate expense accounts for materials and labor. At the end of the year, it is theoretically possible to generate 1099 reports from Quickbooks, but in actual practice, depending on how many expense categories you had, it won't give you clean numbers. I usually run a transaction report by vendor for the year, export to Excel, and delete extraneous information.
Misc
- EIN, TIN, DUA ID number - what are they?
EIN: Employer Identification Number - you should request one from the IRS if you have employees, or your business is a corporation or partnership. You can apply by phone, fax or mail by going to this page on the IRS website.
TIN: Taxpayer Identification Number - generally, your social security number.
DUA ID Number - although the state will use your EIN for employee tax withholding, the DUA has its own system. Your DUA number is what is used to track your SUTA contributions and any state unemployment insurance paid out. You need a DUA number if you have employees in Massachusetts. You get one by registering with the Dept. of Unemployment Assistance here.
- How do I get a free copy of my credit report?
You are entitled to one free copy of your credit report each year from each of the three major credit reporting companies. Since the information from each company should be very similar, you can check your report every four months by simply requesting from a different company each time. You do NOT have to pay for these reports; the companies may try to sell you additional services (such as your FICO score or credit monitoring services), but you DON'T have to buy anything to get your free report. There are many look-alike sites around; if a site requires you to enter a credit card number before providing the report, you're at the wrong place. AnnualCreditReport.com is the ONLY site authorized under Federal law to provide this service. You can also request a free credit report anytime you are denied credit as a result of information on your credit report. So, for example, if you apply for a credit card and are turned down, you can then request a free copy of your credit report.