Two Things All Reporters Must Do to Stay Out of Trouble
The following blog post was prompted by another court reporting agency’s Facebook post about their EDD audit last year. In that audit the auditors were keenly concerned with proof that the reporter was genuinely acting like a sole proprietor. Here is the law:
Labor Code Section 2776:
(a) If an individual acting as a sole proprietor, or a business entity formed as a partnership, limited liability company, limited liability partnership, or corporation (“business service provider”) contracts to provide services to another such business or to a public agency or quasipublic corporation (“contracting business”), the determination of employee or independent contractor status of the business services provider shall be governed by Borello, if the contracting business demonstrates that all of the following criteria are satisfied...
Reporters need to be “acting as a sole proprietor” in order to qualify for the business-to-business exemption. The purpose of the post below is just a reminder that the more evidence of ‘acting as a sole proprietor’ the better in the case of an audit. How does one act like a sole proprietor? That might include things like I suggest: getting a business license in your city; having marketing materials.
For further reading: https://www.toddolivas.com/blog/media/DRA%20AB5%20and%20AB2257%20-%20Oct%2015%202020.pdf
Here is the main post.
Hey there! Just a heads-up for all reporters: it's super important to have the following two things in place NOW so your freelance reporting business is not called into question.
How could it be called into question? Quick recap: there is this thing called the ABC test which is designed to weed out misclassified employees from bona fide independent contractors. You must pass all three prongs of the ABC test:
A - Free of direction & control
B - perform work outside of hiring entity's business
C - independently established trade, occupation, or business
Given the relationship CSRs have with most court reporting agencies, the A prong is pretty easy (or should be easy) to pass.
Prongs B and C are slightly more difficult. What really counts in an audit is that you and the agency need to have a true business-to-business relationship. And unless the reporter looks and acts like a real business, (sole proprietor) the reporter will be classified as an employee.
Here’s some things to consider:
1. Organize Like a Business
— Get a business license and/or get an Employer Identification Number (EIN), form an entity like a Fictitious Business Name (FBN), LLC or Corporation.
- Getting a business license is super easy-peasy and cheap. Just Google your city or county and 'business license'. Do it today.
- Getting an EIN is free and can be done on the IRS website.
- Forming an entity is not hard either. Consult your attorney or CPA to see which entity is most advantageous for you. Then consider a service like legalzoom.com.
2. Advertise Like a Business
- Tell the world about your services on a website or print ads!
- From what I’ve heard, simply having a social media profile is NOT sufficient. Businesses advertise themselves; right? So should you. Consider a free (or super cheap) website through squarespace.com or wordpress.com to get up and going now.
Business cards are not enough, either. Businesses have print ads, flyers, et cetera. So go create a super easy, super slick flyer on canva.com. There are millions of templates ready to go. Then print some out, have them on hand proving you are running an actual reporting business.
If you don't have the above two items, you might be considered an employee of any agency — forcing them to withhold taxes and adjust rates to cover UI, SDI, et cetera — probably the last thing on your mind when you started reporting; right!?
So the bottom line is act like a sole proprietor by considering these steps:
1. Get a business license in your city or county/FBN/EIN/LLC/Corp
2. Advertise on your own website and in print
This is not legal advice. And it is no substitute for legal advice tailored to your individual and business needs for which you should retain and seek the advice of your own counsel.
Further reading: DRA Handout
Tuesday, November 14, 2023