| Dear Bernie:
At your request I have outlined and compiled information regarding
why a business should have worker's compensation insurance, report
income, and obtain a business license. I have attached the code
sections with areas highlighted that are relevant. I hope this information
expresses the importance of using reputable contractors.
Income
The IRS defines gross income as income from all sources. It can
be compensation for services, business income, interest, rent, dividends,
and gains on sale of property. Code Section 61 of the Internal Revenue
Service clearly outlines what is income.
Upon hiring a contractor you should always obtain a Form W-9. A
1099 is required to be issued at the end of the year for any unincorporated
entity who was paid $600 or more during the calendar year.
Business License
The state of Virginia has a license requirement for every person
engaging in business in our Commonwealth. There is general information
regarding licensing under Code Section 58.1-3703.1 of The Code of
Virginia.
Any person who engages in business must obtain a license from the
city(s) of operation.
Workers Compensation
The state of Virginia has a requirement for worker's compensation
insurance. This information is located under Code Section 65.2 of
The Code of Virginia. It is also know as the Virginia Worker's Compensation
Act.
The law requires that a business with three or more employees have
a worker's compensation policy. However, worker's compensation insurance
is available for those businesses having less than three employees.
If a contractor is hired who does not have worker's compensation
insurance the organization or firm that hired the contractor is
liable for this contractor's worker's compensation. Upon annual
audit, the organization or firm that hired the contractor will have
to show the insurance auditor insurance certificates. Any contractor
hired that does not have a certificate stating they are covered
by a worker's compensation policy becomes an "employee"
of the organization that hired him. This results in higher insurance
premiums for the employing organization because the auditor calculates
the 'insurance" for that contractor based on fee paid for the
job.
Ultimately, the property owner or the association is responsible
for any claims. Therefore it is advisable that all contractors working
on a property have worker's compensation insurance.
In summation, while some contractor's bids may come in lower than
other bidding vendors, in order to calculate any real savings you
must be sure that the new prospective vendor is abiding by all the
laws for reporting of income, licensure, and insurance. If they
are not, they are not saving you any money. The extra bookkeeping
and insurance fees will probably negate any "savings".
Sincerely,
Barbara E. Merritt |
|