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Joseph
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Category: California Employment Law
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We are a properly registered Virginia LLC with one office in

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We are a properly registered Virginia LLC with one office in Arlington, Virginia. We have no clients in California. We want to hire a California resident as a part time employee that will perform graphic design work on her computer from her home in Oakland.
Do we have to register with the California SOS and pay the franchise taxes? We plan to register with EDD and pay the appropriate payroll taxes and obtain a valid California workman's comp policy.
Please advise.
Thanks
Hello and welcome to JustAnswer.

My goal is to provide you with excellent service today.

Yes, as a business entity in a foreign (out-of-state) jurisdiction who will be conducting business (hiring an employee to do work in California) you are required to register with the Secretary of State by filing form LLC-5.

See:

http://www.sos.ca.gov/business/be/faqs.htm#form-question7

and

http://www.sba.gov/community/blogs/community-blogs/business-law-advisor/doing-business-multiple-states

You would also be required to pay the $800 in annual LLC taxes ( which is due and payable by the 15th day of the 4th month after the
beginning of the LLC’s taxable year (fiscal year).

https://www.ftb.ca.gov/forms/2013/13_3522.pdf


I imagine you have considered this, but the alternative to hiring an employee and having to pay all these taxes, would be to fire the graphic designer as an independent contractor instead, assuming the person you intend to hire would fit into the independent contractor category. (In which case you would not be required to register with the SOS, or EDD for that matter, or pay workers' compensation).

Since she would be working from home on her own computer that already goes toward her being an independent contractor. Additionally, if she has control over when she performs the work (i.e. no set hours) and is paid for each task she completes (rather than an hourly wage) that would also go toward her being an independent contractor.

Additional factors that would go in favor of the person being an independent contractor instead of an employee would include whether what she does is distinct from what your business does. (I.e., if your business isn't in graphic design that would go in your favor).

Please see here for more information:

http://www.dir.ca.gov/dlse/faq_independentcontractor.htm


I hope the above information is helpful.

Please let me know if you have any follow up or clarifying questions.

Thanks and best of luck!


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