Most states have a new hire database, which is typically used to track employment for child support and benefits purposes. Florida is no exception, but a new 2021 statute greatly expands the use of the new hire database and increases reporting requirements. The law came into effect on October 1, 2021.
What Has Changed?
There are two major changes that have been made to the law. First of all, it expands the reporting requirement to all businesses. Previously, only businesses with 250 or more employees were obliged to report new hires.
Second, and more troubling to many businesses, it expands the requirement to “service recipients” who hire independent contractors in the course of their business. Basically, this means any business that outsources any part of their business to a contractor or freelancer, such as a small business hiring a website designer, a publisher commissioning cover art, etc. It covers contractors that are paid $600 or more in a calendar year.
This adds new requirements (for example, a freelancer who doesn’t have an EIN, but hires another freelancer to do something, will have to get an EIN to stay in compliance) and may worry some businesses given the national crackdown on misclassification. There is also the implication that businesses that hire contractors might have to deal with wage garnishment for child or medical support. Clearly, the removal of the 250 employee rule is intended to get rid of a loophole which might allow somebody to be hired under the table. However, the reporting requirements might actually increase the amount of under-the-table hiring which goes on, especially of contractors.
Note that it does not apply to individuals who hire contractors outside of the course of a business, such as plumbers. However, the definition of service recipient is very broad and might cause reporting issues for others.
Prior to the current law, employers could voluntarily report independent contractors, but it is likely very few did. The information can be made available to certain government agencies, not just for child support purposes, but to unemployment compensation, food assistance, etc. This has led to privacy concerns, but the fact is that the law is in place and companies need to comply with it.
What Do Companies Need to Do?
Companies need to do the reporting as part of new hire paperwork. With contractors and freelancers, it is more important than ever to collect W9s from your contractors, issue them 1099s, and make sure they are added to the database under either their SSN or tax identification number. (The additional SSN requirement means that all contractors in Florida should get a tax identification number to protect their privacy). Collecting W9s is important in any case, as if you get audited you might find that you get into some trouble with the IRS which may, for example, take away the associated tax deduction and assign a penalty.
The statute does not mention penalties for non-compliance. It typically requires that information to be sent on a W-4 form, but alternatives can be used. Reporting has to take place within 20 days of the hire date or, for contractors, the contract date. (For contractors, it doesn’t provide a specific form, but rather specifies the information which needs to be provided).
This is something bookkeepers can absolutely help with. Making sure that all contractors have 1099s associated with them can be a pain for companies that hire a lot of contractors, and bookkeepers can ensure that the appropriate forms are always filed.
If you need bookkeeping support for your business or for your CPA services, contact J. Zollo & Associates today. We can make sure that your business keeps accurate records and stays compliant with reporting requirements not just for new hires, but for many other situations.