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Contractors send 1099 they receive from a company to FTB. They don't need to complain. This means that a bootstrapped start-up cannot temporarily hire a graphi

Contractors send 1099 they receive from a company to FTB. They don't need to complain. This means that a bootstrapped start-up cannot temporarily hire a graphics designer or a coder in California anymore, without the budget to make him an employee. But non-VC entrepreneurship has been hardly possible here for other reasons: building and rent control regulations driving the housing and office space costs. Since the 2006's "web2.0", progressive California regulators are at it for real, pitching entrepreneurship as an enemy of labor: it's no longer a place for small business and non-VC startups. Those have been fleeing.

gamblor956 7y ago
This means that a bootstrapped start-up cannot temporarily hire a graphics designer or a coder in California anymore, without the budget to make him an employee. This is so completely wrong. You know what the difference between a temporary, part-time employee and an independent contractor is, from the business' financial point of view? They have to pay payroll taxes (and in some states unemployment insurance levies) for the part-time worker instead of forcing the worker to handle those costs themselves. And that's it. They aren't required to provide benefits or anything else until they exceed a threshold size in terms of employees (generally 50) or annual income (usually >$10 million/year). In your specific example, the startup could hire both the designer and the coder as employees or as contractors, so long as both were allowed to work on other gigs while they were temporarily contracting with you and your startup wasn't in the business of graphics design or software. (If your business is a software business, the analysis is more granular: is the coder working on the revenue-generating part of your software, or on a supporting part of the software like the networking code?) Since the 2006's "web2.0", progressive California regulators are at it for real, pitching entrepreneurship as an enemy of labor: it's no longer a place for small business and non-VC startups. Those have been fleeing. California went from being the world's 8th largest economy to the world's 5th largest economy over this time. Has lead the nation in small business growth for the past decade. California's regulations basically just filter out all of the fake businesses that don't have enough backing to at least attempt existence.
- dangxiaopin 7y ago
  They have to pay payroll tax and administer payroll. I ran a bootstrapped business, that initially had several contractors, till a day I could afford to replace (in several cases, promote) them to employees, so I know this intimately. Additionally, there are payroll costs and the accounting costs, and the payroll administration burden. For a tiny growing business with no outside capital it matters more than you know. The 5th largest economy figures come from semi monopolies like Google and Facebook. In the beginning, they get a VC investment, a comfortable office, a payroll admin and Wilson and Sonsini from day one. In the meantime, San Francisco restaurants cannot afford cooks.
- zaroth 7y ago
  I think the delta between "contractor" and "part-time or temporary employee" is a bit steeper than you are claiming. The tax issues are not minor, to begin with. If I have no property and no employees in a given State, I likely do not pay all sorts of taxes to that state which I otherwise might have to. I likely do not even file an income tax return with that State. As soon as I have an employee living in a State, then I definitely have to file taxes there. I also have to register with their labor department, there are probably state-specific labor laws which I could run afoul of, maybe state-specific postings and notices, etc. It's not simply a matter of the payroll company making the correct deductions. I have to follow a different hiring practice to hire an employee than a contractor. There are likely to be more requirements on how I must make the job posting, and how I can conduct the interview process. There are additional government forms that must be filled out during the hiring process, and after the candidate is hired. The legal rights of a temporary employee are different from the legal rights of a contractor in important ways that I might not fully understand. Once an employee is hired, I either have to pay them hourly, or a guaranteed monthly salary. I cannot offer to pay the employee a fixed amount for a certain deliverable. I have to pay the employee on a set time schedule, and not based on deliverables. I cannot withhold payment based on deliverables not being met. I will have to update my worker's compensation policy. Depending on the size of my company and the state, I may have to enroll this person (and their family) to provide health benefits, life insurance, disability, etc. Also, certain states impose family and medical leave requirements on employees which would not apply to contractors. Federal discrimination regulations only apply to employees. I'm sure the list goes on and on... And here I was, just wanting to get some help mocking up this new UI screen, or porting some code from one language to another, or making a new logo for my site, or updating the CSS to work with latest device X, or... Over the last decade I've spent mid-6-figures on sites from Rent-a-Coder to Upwork and it's been a game changer for being able to quickly tackle big problems which arise due to a new R&D effort, or closing a new customer contract which our current feature set doesn't quite support, or just getting logos and wireframes because I'm not a designer and don't have nearly enough work to justify hiring one. In short, contractors are super fucking important, and the "ABC" test seems to fundamentally mischaracterize a lot of tried and true contract work. Someone that I am hiring to perform a specific task, who is working remotely, who I will not be on-boarding, who will not be working closely with many employees, and who is paid upon completion of that task and then goes away, should be a contractor, even if they are doing work that is central to my business, and even if I closely monitor or specify how the work is to be completed.

gamblor956 7y ago

This means that a bootstrapped start-up cannot temporarily hire a graphics designer or a coder in California anymore, without the budget to make him an employee. This is so completely wrong. You know what the difference between a temporary, part-time employee and an independent contractor is, from the business' financial point of view? They have to pay payroll taxes (and in some states unemployment insurance levies) for the part-time worker instead of forcing the worker to handle those costs themselves. And that's it. They aren't required to provide benefits or anything else until they exceed a threshold size in terms of employees (generally 50) or annual income (usually >$10 million/year). In your specific example, the startup could hire both the designer and the coder as employees or as contractors, so long as both were allowed to work on other gigs while they were temporarily contracting with you and your startup wasn't in the business of graphics design or software. (If your business is a software business, the analysis is more granular: is the coder working on the revenue-generating part of your software, or on a supporting part of the software like the networking code?) Since the 2006's "web2.0", progressive California regulators are at it for real, pitching entrepreneurship as an enemy of labor: it's no longer a place for small business and non-VC startups. Those have been fleeing. California went from being the world's 8th largest economy to the world's 5th largest economy over this time. Has lead the nation in small business growth for the past decade. California's regulations basically just filter out all of the fake businesses that don't have enough backing to at least attempt existence.

dangxiaopin 7y ago
They have to pay payroll tax and administer payroll. I ran a bootstrapped business, that initially had several contractors, till a day I could afford to replace (in several cases, promote) them to employees, so I know this intimately. Additionally, there are payroll costs and the accounting costs, and the payroll administration burden. For a tiny growing business with no outside capital it matters more than you know. The 5th largest economy figures come from semi monopolies like Google and Facebook. In the beginning, they get a VC investment, a comfortable office, a payroll admin and Wilson and Sonsini from day one. In the meantime, San Francisco restaurants cannot afford cooks.
zaroth 7y ago
I think the delta between "contractor" and "part-time or temporary employee" is a bit steeper than you are claiming. The tax issues are not minor, to begin with. If I have no property and no employees in a given State, I likely do not pay all sorts of taxes to that state which I otherwise might have to. I likely do not even file an income tax return with that State. As soon as I have an employee living in a State, then I definitely have to file taxes there. I also have to register with their labor department, there are probably state-specific labor laws which I could run afoul of, maybe state-specific postings and notices, etc. It's not simply a matter of the payroll company making the correct deductions. I have to follow a different hiring practice to hire an employee than a contractor. There are likely to be more requirements on how I must make the job posting, and how I can conduct the interview process. There are additional government forms that must be filled out during the hiring process, and after the candidate is hired. The legal rights of a temporary employee are different from the legal rights of a contractor in important ways that I might not fully understand. Once an employee is hired, I either have to pay them hourly, or a guaranteed monthly salary. I cannot offer to pay the employee a fixed amount for a certain deliverable. I have to pay the employee on a set time schedule, and not based on deliverables. I cannot withhold payment based on deliverables not being met. I will have to update my worker's compensation policy. Depending on the size of my company and the state, I may have to enroll this person (and their family) to provide health benefits, life insurance, disability, etc. Also, certain states impose family and medical leave requirements on employees which would not apply to contractors. Federal discrimination regulations only apply to employees. I'm sure the list goes on and on... And here I was, just wanting to get some help mocking up this new UI screen, or porting some code from one language to another, or making a new logo for my site, or updating the CSS to work with latest device X, or... Over the last decade I've spent mid-6-figures on sites from Rent-a-Coder to Upwork and it's been a game changer for being able to quickly tackle big problems which arise due to a new R&D effort, or closing a new customer contract which our current feature set doesn't quite support, or just getting logos and wireframes because I'm not a designer and don't have nearly enough work to justify hiring one. In short, contractors are super fucking important, and the "ABC" test seems to fundamentally mischaracterize a lot of tried and true contract work. Someone that I am hiring to perform a specific task, who is working remotely, who I will not be on-boarding, who will not be working closely with many employees, and who is paid upon completion of that task and then goes away, should be a contractor, even if they are doing work that is central to my business, and even if I closely monitor or specify how the work is to be completed.