Episode 90: 1099 Independent Contractor or W-2 Employee: Breaking Down the Difference with Rich, Javier, and Dustin
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This episode threw quite a curveball at us, we were on our way to Long Beach and were prepared to record our final stop of the live tour when we found out that the city was recommending to not have large group gatherings. We decided it was in the best health interest for everyone if we canceled the event. We were pretty bummed about it but we adjusted and changed it to a Facebook Live, as well as an epic podcast episode. We turned our Air BNB into a recording studio and off we went! We sat down with our good friends Rich Gallo of Pure Swim, Javier Payan of Payan Pools, and Dustin Anderson of Precision Aquatics to discuss 1099 Independent Contractors and W-2 Employees. With the new AB-5 Law coming out in California, there have been a lot of questions surrounding this topic and we wanted to shed some light on what it means and how to adjust to it if necessary.
All 3 of the guests, as well as us, have dealt with both independent contractors and employees so during the episode we share our experiences. The overall goal of this podcast was to define each one so that businesses could figure out where they fit into the conversation and help make the transition if necessary. There is a lot of negative talk surrounding this, but we tried to stay positive and make suggestions that will overall make the industry better. When we were running Brothers Pool Service this topic was always being discussed between us and since we started Pool Chasers, it has been one of the most asked for topics. We hope you get a better understanding of it and get as much out of this episode as we did.
Show Guests
Rich Gallo of Pure Swim in Los Angeles, CA. Website Facebook Instagram
Javier Payan of Payan Pool Pool Service in San Diego, CA. Website Facebook Instagram
Dustin Anderson of Precision Aquatics in San Diego, CA. Website Facebook Instagram
Show Notes
[03:16] How have Independent Contractors been used in the pool industry?
[05:20] Did you ever have independent contractors work for you?
[16:34] The relationship between the independent contractor and the owner
[34:32] Employees going to the unemployment office right now during Coronavirus
[37:38] AB 5 Law passed in California
[51:02] Delivering quality service
[55:25] There is nothing wrong with being a Sole Proprietor
[01:03:20] The ABC’s broken down
[01:06:48] Staffing Agency
[01:16:16] The steps in making an employee
[01:41:09] The liability levels
Mentions & Resources
Dynamax Decision: https://poolchasers.link/dynamex-resource-90
AB-5 Law: https://poolchasers.link/ab5-resource-90
1099 Instructions: https://poolchasers.link/1099-resource-90
W-2 Instructions: https://poolchasers.link/w2-resource-90
Episode 90 Topics and Terminology
What is an Independent Contractor?
“People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.” - IRS Website
What is a 1099?
“Form 1099 is one of several IRS Tax Forms used in the United States to prepare and file an information return to report various types of income other than wages, salaries, and tips. The term information return is used in contrast to the term tax return although the latter term is sometimes used colloquially to describe both kinds of returns.” - Wikipedia
What is the AB 5 Law?
“AB 5 is a bill the Governor signed into law in September 2019 addressing employment status when a hiring entity claims that the person it hired is an independent contractor. AB 5 requires the application of the “ABC test” to determine if workers in California are employees or independent contractors for purposes of the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission (IWC) wage orders. The California Supreme Court first adopted the ABC test in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903. Among other things, AB 5 added a new section to the Labor Code addressing these issues (section 2750.3).” - State of California Department of Industrial Relations
What is Dynamex?
“On Monday, April 30, 2018, the California Supreme Court issued a landmark decision in the matter of Dynamex Operations West, Inc. v. Superior Court of Los Angeles. In a voluminous, 82-page decision, the California Supreme Court reinterpreted and ultimately rejected the Borello test for determining whether workers should be classified as either employees or independent contractors for the purposes of the wage orders adopted by California’s Industrial Welfare Commission (“IWC”) in favor of a worker-friendly standard that may upend the existing independent contractor labor market.” - Labor & Employment Law Blog
What is the Labor Board of California?
“The mission of the California Labor Commissioner's Office is to ensure a just day's pay in every workplace in the State and to promote economic justice through robust enforcement of labor laws. By combating wage theft, protecting workers from retaliation, and educating the public, we put earned wages into workers' pockets and help level the playing field for law-abiding employers. This office is also known as the Division of Labor Standards Enforcement (DLSE).” - State of California Department of Industrial Relations
What is Workers Compensation?
“Workers' compensation and often abbreviated as Workers' Comp, is a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence.” - Wikipedia
What is Payroll Tax?
“Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their staff. Payroll taxes generally fall into two categories: deductions from an employee’s wages, and taxes paid by the employer based on the employee's wages.” - Wikipedia
What is License & Bond?
“When you say that you are licensed, bonded and insured, that means that you have the required licensing for your business, proper insurance, and have made payments for additional coverage with a bond.” - Next Insurance
What is an Employee Agreement?
“A comprehensive employee confidentiality non-disclosure agreement is thus critical to protecting your information, giving notice to all of your staff members that they have a serious and ongoing duty of confidentiality to the company.” - Legal Zoom
What is a CPA?
“A CPA (certified public accountant) is a trusted financial adviser who has passed the rigorous CPA Exam and met work experience requirements before being licensed. These requirements for licensure ensure CPAs maintain the highest standard of knowledge and ethics when operating in financial positions.” - Wikipedia
What is a Sole Proprietor?
“A sole proprietorship is the simplest and most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no distinction between the business and you, the owner. You are entitled to all profits and are responsible for all your business’s debts, losses and liabilities.” - U.S Small Business Administration
What is Liability Insurance?
“Liability insurance provides the insured party with protection against claims resulting from injuries and damage to people or property. Liability insurance policies cover both legal costs and any payouts for which the insured party would be responsible if found legally liable. Intentional damage and contractual liabilities are generally not covered in these types of policies.” - Investopedia
What is C61D35 Swimming Pool Maintenance Classification?
“A pool and spa maintenance contractor installs, replaces or repairs pool motors, pumps, filters, gas heaters and any above ground piping in connection with pools; includes electrical switches, breakers, pool lights, diving boards, existing solar systems that heat pools, pool and spa acid baths and applies vinyl liners to existing surfaces.” - Department of Consumer Affairs Contractors State License Board
What is I-9?
“Use Form I-9 to verify the identity and employment authorization of individuals hired for employment in the United States. All U.S. employers must properly complete Form I-9 for each individual they hire for employment in the United States. This includes citizens and noncitizens. Both employees and employers (or authorized representatives of the employer) must complete the form.” - U.S Citizenship and Immigration Services
What is a Staffing Agency?
“A staffing agency — also known as a search, recruiting or staffing firm or service — is an organization that matches companies and job candidates. By registering with a staffing agency, you have the potential to make connections with multiple hiring managers looking to find the right people for their job openings. You can save time and find opportunities you may not be able to find on your own.” - Chron
What is the Law of Reciprocity?
Social psychologists call it The Law of Reciprocity – and it basically says that when someone does something nice for you, you will have a deep-rooted psychological urge to do something nice in return. As a matter of fact, you may even reciprocate with a gesture far more generous than their original good deed