Family Waivers & Employee or sub contractor?

Are you positive you know the specific difference between an employee, working ‘for’ you and a subcontractor working ‘with’ you? It’s an important distinction for ‘worker’s compensation’. Keeping it all in the family is the aim of one licensed contractor whose brother wants to take over the business…

Q: My brother-in-law wants to give his Class “B” License to his brother (my husband.) I contacted the CSLB and they said that he could apply for a Family Waiver. They said just submit the Application; write ”Family Waiver” across the top; send in $400; and include two letters – one from each brother – stating that one wants to give and the other wants to receive it.

In reading your column I see that most Family Waivers are given if the family members have worked with the company for 5 out of the last 7 years. This may be hard to prove. Are there other rules that I should be aware of? There isn’t much information on the CSLB website about Family Waivers.

A: From my experience, a “Family Waiver” is not that simple. The key is first and foremost that the family member (your husband) must have worked full time for the contractor (your brother-in-law). This work must have been as an employee for 5 of the prior 7 years. This means your husband would need to show proof of being paid (such as a W-2). The CSLB will also look at a company’s Worker’s Compensation history when reviewing these applications. In other words, if your brother-in-law did not carry Worker’s Compensation insurance, required by law when employees are at work, it will be hard to claim that your husband was employed.

Q: I am the owner of a small construction corporation. I receive a paycheck from my corporation, but my pay is exempt from Worker’s Compensation coverage. I employ a few full time carpenters, and go through a couple part time helpers per year. These guys are covered under my companies’ Worker’s Comp policy with State Fund.

Occasionally I hire other contractors (sole owners) who are out of work. I have been just “1099’ing” them, as though they were any other subcontractor. I know this is a gray area and try to give them ‘direction and control’ over certain tasks, rather than put them next to my employees.

They bill me on an hourly basis, and at times their pay is much higher than my employees because there is no labor burden (comp, state or fed tax, social security). Consequently, if I were to be retroactively charged for premiums and withholdings on their higher pay, I would be bankrupt. Should I just insist that everybody who works for me goes on payroll? Furthermore, I suspect that some of my competitors cheat on their comp reports or cancel comp altogether. Sign me “barely afloat in California”.

A: Anyone who works for you is either an employee or licensed subcontractor. There really is no middle ground. In other words, these “other (sole owner) contractors” must be licensed or they are essentially your employees for Worker’s comp or tax purposes.

I do not know what would happen if you were retroactively charged; however, in the future, make sure the sole owners are licensed or put them on the payroll. This would protect you and your customers.

The CSLB is concentrating its enforcement efforts on going after contractors who under report or fail to carry Worker’s Compensation but in fact have employees. Hopefully, this might level the playing field a little.

I know things are rough throughout the state. I wish you well and hope you’re able to stay ‘afloat’ until our huge ‘ship-of-state’ turns around.