Please note I wrote this in May 2001. Facts may have changed.
I did some researching lately on the requirements of self-employed status in San Diego, California (laws may be different elsewhere, of course!), and I found out a few things that I thought you might like to know. Some of these facts you probably already knew, and some may surprise you. First of all, did you know that every self-employed person doing business in the city of San Diego is required by law to own a Business Tax Certificate (BTC)? Yes, they haven’t done a very good job at getting the word out about this one, and I’ve never heard of anyone enforcing it, but apparently, anyone could walk up to you while you’re doing your freelance work and demand to see your BTC. The good news is that this BTC (formerly known as a Business License—ah, we’ve at least heard that term before, eh?) typically costs only $46 a year. You may find out all about the BTC, and download the necessary application forms in Adobe Portable Document Format (PDF), at http://www.sandiego.gov/treasurer/btax.shtml
Second, some of us have had, at one time or another over the past several years, certain agencies or individuals tell us that, in order for us to claim independent contractor status, we were required by law to have to have a fictitious business name, incorporated status, a FEIN (Federal Employer ID Number), Worker’s Compensation Insurance, California State Disability Insurance, malpractice (professional liability) insurance, etc. Here is what I found out, by making several phone calls to local and state agencies and by looking up information on government web sites, one of which was (ref #1) http://www.sandiego.gov/economic-development/business/starting/tenkeysteps.shtml:
- A self-employed person is not required to have a fictitious business name. You may do business under your own name, if you wish (see ref #1).
- A self-employed person is not required to be a corporation. You only need to be a corporation if you want to hire employees (see ref #1).
- A self-employed person is not required to have a FEIN. You only need to have a FEIN if you want to hire employees (see ref #1).
- A self-employed person is not required to have Worker’s Compensation Insurance. You only need to have Worker’s Comp if you want to hire employees. Call the California State Industrial Relations Department, Worker’s Compensation Division (28 Civic Center Plaza, Suite 451, Santa Ana, CA, 92701-4070) at 714-558-4597 for more information.
- A self-employed person is not required to have California State Disability Insurance. Employers need to deduct this insurance from their “employees’” paychecks, but this does not apply to entities contracting with self-employed persons. Call the California State Employment Development Department Disability Insurance Claims office (8977 Activity Road, Suite 200, San Diego, CA, 92126-4427) at 800-480-3287 for more information.
- A self-employed person is not required to carry malpractice (professional liability) insurance. However, it is a very good idea to do so, and you may apply for RID’s group professional liability insurance for $136 a year. I wish I could tell you where to go to get an application form. I got one from Janet Maxwell several months ago. I searched RID’s Web site to no avail. However, you may contact RID at:
Registry of Interpreters for the Deaf, Inc.
333 Commerce Street
Alexandria, VA 22314
(703) 838-0030 V, (703) 838-0459 TTY
(703) 838-0454 Fax
In summary:
- If you do any work as a self-employed person, i.e., if you work any more than 6 days in a calendar year as an independent contractor, even if you usually work for an employer (see ref #1), then you are legally required to purchase a Business Tax Certificate (BTC), and have it on your person at all times when engaged in business.
- You may wish to consider purchasing professional liability insurance as an added protection, even though you are not legally required to carry it.
- A self-employed person is not required, by default, to have a fictitious business name, incorporated status, a FEIN, Worker’s Compensation Insurance, or California State Disability Insurance.
As a freelance interpreter/transliterator, I wanted to be fully aware of the employment and taxation laws pertaining to me, so I did my homework to find out exactly what was what. I may as well not have gone to all this trouble just for myself, so I am providing this information for the benefit of my professional colleagues. If I am incorrect in any of the information I have shared with you here, or if you have additional information that would provide clarification, please reply to me with your corrections and/or additions, and please… cite your sources. 😉
Best of business to you.
Daniel Greene, CI and CT
Daniel Greene first published this document at https://danielgreene.com/lawresep.html in May 2001.
Daniel Greene 
Comments
15 responses to “Legal Requirements for Self-Employed Persons”
[…] was linking to my pages. The guy quoted below found the answers he was looking for in my post “Legal Requirements for Self Employed Persons.” I feel happy that publishing my research helped […]
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Thank you for the information. I have a client that is apprehensive in hiring me due to not having workman’s comp. When I talked to some insurance brokers about it they were baffled, as I am a self employed business owner. This confirms what I have believed to be true for 9 years. Thank you.
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I was amazed on your infos on Legal Requirements for Self-Employed Persons. Thank you for sharing Daniel.
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Very nice article you’ve got there. We have something in common because we both blog about laws & legal systems
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i run a small business both online and offline and they serve as my primary source of income. my small business at home is a mini hyrophonics vegetable farm.”-:
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I wonder what the ratio is between the cost of compiance and collection and the total tax collected.
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Thank you for this information. It was exactly what I needed and saved me alot of research time. Thank you again Mr. Greene.
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“A little dust on it” ha ha. 😉 Can dust collect on electrons?
Glad to see that people are still getting something out of this post. I didn’t mind paying a certain amount in retroactive fees, but I agree that there are limits, Pat and CAnn. Good luck with you business, Timothy.
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I was glad I came across your post. I was simply looking for some general info, and low and behold, you came up in my Google search. I recently took the leap into Independent content production via freelancing, and as I am just sitting in the valley next to you (El Cajon), even the post has a little dust on it, I thought I would post a reply. I hope business is good,as 2009 is a little bit shaky economically compared to 2007.
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Pat,
I am a publishing freelancer and just got the same letter from the Mayor’s Office/Meredith Brown (Office of Small business) demanding $301.84. I read Muni Code 30.0110 and see that there is no requirement for the city to ever notify anyone of the fact that self-employment/freelance work requires a business tax certificate, so, conveniently, they can assess the late fees (in addition to a processing fee, aargh). I am searching for any stories about people who have contested this rip-off, but can’t find much. Turko (KUSI) did cover the issue last year, I think, as it related to some ladies who got together and had a little investment club and actually made a few dollars; when they reported the gains on their state tax returns, to which the City of SD recently bought en masse access, it triggered the tax letter. They were outraged and I think the City Attorney’s office is reviewing whther such clubs are appropriately classified as businesses.
I know of no media coverage otherwise. Frankly, given that the business tax is a revenue-generating tax, and not regulatory, and carries only a potential misdemeanor charge for nonpayment, it seems fairly unenforceable. I doubt that much would come of it if you just ignored it. In theory, the Treasurer’s staff can come and search your house without a warrant, looking for evidence of you conducting a business. I’d really like to see that. Let me know if you find out anything. I’m debating whether I will just ignore the charges, because as of this year I am no longer doing freelance work… I would be fairly OK with forking over $34 x 3 = $102 for years 2005-2007, but >$300? Not.
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Does anyone have a reply to my April 10 comment above.?
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I just became aware that I needed a Business Tax Certificate when I received a letter from the city advising me that with penalties added I owe them about $300! The certificate itself only cost about $40 per year times 3 years is $120. I quite annoyed that they took 3 years to tell me about this. What’s interesting is that they can only collect penalties for up to 3 year. What a coincidence that they waited until now to contact me. I am entitled to a hearing if I want to fight the penalty. Has anyone had experience with this and is it worth my time? I just think this is unethical for them to wait 3 years to contact me.
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Thanks, Daniel; Yes, I’m sure you’ll have to check more resources. Shanta, your guess is as good as mine. I spent hours researching the law as it relates to self-employed persons in San Diego, and I published my findings for the benefit of others. The rest is up to you.
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This helps me a lot, but where can we look up the rules for the State of Pennsylvania?
Thanks.
Shanta
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I couldn’t understand some parts of this article Legal Requirements for Self-Employed Persons, but I guess I just need to check some more resources regarding this, because it sounds interesting.
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