Re: Pass through expenses
Welcome to the group instatone!
After reading your question, I wanted to verify some additional details with you if you do not mind. Are yo certain that the person is a subcontractor and not possibly an employee?
You can review the differences by reviewing the Independent Contractor Toolkit attached with this response but here is a quick summary of important questions:
- Does the person have a fixed schedule with your company? ( Do you control their schedule)?
- Do you instruct or supervise them?
- If additional resources such as supplies or labor ( another person) are required do you pay for the additional expenses?
- Do they only work for you?
- Is the work to be performed expected to continue on for an indefinite time frame?
Intuit has a 10 question quiz that will help you make the distinction between an employee vs a subcontractor.
There are many important differences between hiring an employee compared to paying a subcontractor. Besides the accounting differences, you may have additional requiremetns like workers compensation to take into consideration. For example, in California, business owners are supposed to obtain a certificate of insurance from all of their subcontractors and to keep it on file until their annual workers comp audit.If they do not collect the certificate of insurance and cannot prove that the subcontractor is exempt, you may end up paying for additional coverage and even a penalty.
Lynda provided such a complete answer and since this has been an area of focus during workers comp audits this year, I felt it was important to check.