How to protect your business as an independent contractor
September 16, 2021
New as of May 4, 2023
Providers and Service Companies who operate through an LLC are now eligible for a Business Badge! If you operate under an active LLC that’s in good standing, you can update your tax information to earn a Business Badge. Learn more about adding your LLC to Field Nation in this Help Center article.
Introducing the Business Badge for providers and service companies
More and more companies want to maintain a business-to-business relationship with the providers and service companies they work with on Field Nation. To make it easy for them to search for and assign work to providers and service companies who consider themselves businesses, we’re introducing the Business Badge on Friday, October 1st, 2021.
The requirement to get a Business (BIZ) Badge is an Employer Identification Number, or EIN. In addition to benefits on Field Nation, like being eligible for more work, having an EIN helps protect the business you’ve worked so hard to build. Not sure if an EIN is right for you? Some providers use their EIN with Field Nation but don’t use it to file their taxes, for example. You have options.
Watch the pre-recorded webinar, co-hosted by Field Nation and an attorney from Winthrop & Weinstine, to learn more about the benefits of an EIN and how to get one, when and where you can use your EIN, and how to get a Business Badge. You can also read a transcription of the webinar below.
Hello and welcome to the Field Nation webinar on “How an EIN and a business entity can help you protect your business as an independent contractor.” There are a few things that we’ll be covering today. First, we’ll cover the different types of business structures. Next, we’ll talk about best practices to legally protect your business. Then, we’ll talk about why labor classification matters. Last, we’ll introduce the new Business Badge. And finally, we will wrap up with some FAQ’s.
And a quick disclaimer about today’s webinar, the information contained in the webinar and any of its associated materials is educational and intended for informational purposes only. It does not constitute legal advice, nor is it a substitute for legal advice.
So, now that we have that out of the way, I would like to introduce you to our presenters. First, we have Benjamin Klassen, a business transactions attorney with Winthrop and Weinstine. And then we have Nicole Berg, who is our Director of Marketplace Operations and Provider Experience at Field Nation. So, with that, I will hand it over to Ben to walk us through different business structures.
Thank you, Melissa. So, whether you’re starting a new business or reaching a stage where you think it’s appropriate to form a business entity, it’s a very important decision for you with regard to classification and there are certain options that are available to you. We’ll give a little bit of background on what entities you can choose from and how those decisions might affect you as an independent contractor. Your decision point is going to be based on the legal protections and benefits. We’ll also talk about how to make sure your choice doesn’t create too much of a burden or cost to you and will give you the maximum benefit for your business.
The most common form or basic business entity is a sole proprietorship. If you start a business (even as an independent contractor) without forming an entity with the state, you’re automatically a sole proprietorship. One downside of a proprietorship is that your personal assets and your business assets are considered the same. We’ll talk a little bit today about how you can achieve a little bit of benefit from separating your business assets from those of your personal life.
Another common form of business entity is a partnership. There are a few different types of business partnerships formed with the state, but generally it means you have multiple individuals joining together in a business. And there are some forms that provide liability protection to partners.
An LLC is a sort of hybrid company that has become more and more common in recent decades. An LLC is similar to a partnership in that multiple partners join together and form a business. But you can form an LLC on your own, and you can also choose to operate more like a corporation. A corporation is the most traditional form of business structure. It’s a little bit less flexible from a management and tax perspective than other options and can have a little bit higher cost than other business types.
The different forms of entities are recognized by states. When you form a partnership, an LLC, or a corporation, you can go to the secretary of state’s website for your state and find out what options there are. But there’s another factor that’s based on the tax classification of the different entities. These options can be a little bit confusing because you have different choices for each entity type that can relate to your tax treatment, whereas your entity structure might not be affected by the tax decisions.
For a sole proprietorship, we generally consider this a pass-through entity where you don’t have a double layer of tax between the entity and your personal taxes. Similarly, in a partnership where you might have multiple owners of the business, each owner takes a proportionate share of the business’s income or loss.
That contradicts a typical corporation, where you have a double layer of tax. The corporation itself is a taxpayer recognized by IRS. Then, when the corporation pays income or dividends to its owners, there is another layer of tax applied. We’ll focus on the LLC as a simpler option for people, which really can be any of the structures that we talked about. An LLC that is owned by a single member can be taxed as a sole proprietorship. This means that your taxes from your business are consolidated with your personal tax return. At the end of the year, you might not have additional tax obligations at all. An LLC can also be taxed similarly to a partnership where you have multiple members of an LLC and they’d receive income, but there’s no income tax assessed at the LLC level. And an LLC is flexible enough where it can also choose to be taxed like a corporation.
Now that we’ve talked about the business entity types you can choose from, I’d like to talk a little bit about an EIN and how that can relate to your business.
So, a social security number is something you’re all familiar with. It’s issued to an individual, it’s a nine-digit number and it tracks your income and retirement benefits. A social security number is maintained by the IRS and identifies you as a taxpayer. An EIN or an employer identification number identifies a business entity and is similar to a social security number in that it has nine digits, but it’s not tied to an individual. It can be related to just your business. Now, even if you’re a sole proprietor, you can obtain an EIN for your business that is separate from your social security number. Similarly, if you form an LLC, a corporation, or a different entity type, you can also receive an EIN associated with that business. A corporation is required to obtain an EIN and filing taxes because the corporation is considered its own taxpayer.
On to using some of this information to create some best practices for protecting your business. You might’ve heard a little bit about limited liability protection. When you form a business, it creates its own business entity that’s separate from your personal entity. The business entity can own property, it can have cash assets, and it can enter into transactions that are completely different than your personal decisions, your personal assets, your house. That separation creates what we call limited liability. If you do something in the operation of your business – if something were to happen in your work as a technician that could create a personal injury, property damage, or if you have ended up in some kind of dispute regarding the work you do – the counterparty would only be able to go after the business entity’s assets to recover its claims, whereas if you’re operating as a sole proprietor, anyone that you do business with has the ability to collect from your personal assets if they have a sufficient claim.
Aside from limited liability, a business entity and EIN show a professional structure to your enterprise. Somebody would be able to validate that you formed an entity with the secretary of state. Your business records and registrations are public information, so when you provide your business name or EIN to somebody, they might be able to validate that you have continued to file a register record and would know the year that you formed your business. Overall, the value of forming a company and obtaining EIN is a lot greater than the cost that you’d have to spend to put this in place, but one certainly can hire an attorney to help with the process. Many states now have simple forms where you can access from their secretary of state’s website. You might be able to complete all the information online without even needing to print or sign any of the information. And the IRS maintains a website where you can obtain an EIN through a simple online form that might just take you a few minutes.
Another benefit: an EIN is not associated with your person, and it’s not personally identifiable information, whereas a social security number can be used to create bank accounts and has been tied to identity theft. By creating an EIN for your business, you’re reducing the number of times that you have to share your social security number with other parties.
There are other times where you may be required to obtain an EIN. By the time you hire employees for your business, or if you want to get certain business bank accounts or other investment accounts, the counterparty that you work with might require you to have an EIN. Given that it is a low or possibly no-cost option to obtain a number for your business, having that information handy and available when parties are requesting it can help you work quickly and be able to respond to those requests.
So, labor classification and why it matters have gotten a little bit more attention in the press. In California in particular, there’s been a battle for rideshare delivery worker classifications. Many states will challenge the employer-independent contractor classification that a business makes. And this is a complicated area of law where there are multi-factored tests that might vary depending on the state where you’re located or if you’re dealing with certain federal benefit issues or other areas of law.
Companies have a tendency to mitigate risk by seeking assurance that they’re dealing with a business and not necessarily an individual. So, a business entity and an employer identification number are clear ways to establish a business relationship. Now, Nicole had a little bit more information about how this operates on Field Nation’s platform.
Thanks, Ben. So, I want to highlight what this means for technicians, service providers, and service companies on Field Nation. As you may have seen already, there are more and more companies on Field Nation that want to maintain a business-to-business relationship with the contractors they work with. To reduce this risk, buyers want to work with established businesses, which on Field Nation means providers and service companies that have an EIN. Today, buyers can actually filter their search criteria using a business provider filter, but we also want to make it easier for them to determine at a glance which providers and service companies have an EIN on Field Nation.
So, we’re going to be introducing the Business Badge. This new badge has several new benefits and, starting October 1st, individual providers and service companies on Field Nation that have a verified EIN on our platform will receive a Business Badge on their profile. This Business Badge will be visible to all buyers and will be displayed next to your existing badges. In addition to increasing your credibility, a Business Badge will make you eligible for more work opportunities that are reserved for providers with an EIN.
Here is an example of a profile with a Business Badge. As you can see at the top, there might be some screenings there, your background and drug test, and this biz badge will show up right next to them. Field Nation of course, wants to be sure to continue to communicate some of the changes that we’re rolling out here. To ensure the buyers of Field Nation understand the value of this new Business Badge we’re rolling out, we are going to be planning out multiple communication touchpoints. This includes some one-on-one conversations between Field Nation and our customers, an email campaign, and communication plan, as well as additional educational content that will be made readily available for our clients.
Now, we wanted to be sure to go over some of our frequently asked questions and help address these in advance for you. Of course, there’ll be other opportunities for you to share your questions and feedback with us.
FAQ #1: How do you get an EIN?
You can apply for an EIN for free on the IRS website. Do note that it might take up to 14 days for this new number to show up in the IRS’s system. But don’t worry when it comes to adding it to Field Nation: we have a way to go around that for you to make sure your EIN can be represented right away.
FAQ #2: How do you add your EIN to Field Nation?
We have a help center article ready for you that will explain how you can update your tax information within Field Nation. As mentioned, there will be some additional steps needed there. One thing we want to be sure to note is that if you have an active certificate of insurance (COI) uploaded into Field Nation, you will have to re-upload this to ensure that your coverage is reviewed and approved. If there are any questions around that, of course, please feel free to contact our support and we’ll work with you on this. If you do have any challenges in uploading your EIN or adding your EIN information, please be sure to create a support case, choose “tax issues” as your problem type, and include your SS-4 form.
FAQ #3: Do you have to get an EIN to do work on Field Nation?
No, you do not need to have an EIN and you can still operate on our platform with your SSN, but you will not be eligible for any work opportunities that may require a Business Badge. So we just want to bring this forward to your attention. And of course, you may have heard from your accountant that you don’t need an EIN and that’s true. You may not need an EIN, but there are business benefits to obtaining one.
If you are a service company and you already have an EIN, starting October 1st, you will actually see the Business Badge up here right next to your service company badge on your profile. There’s nothing more you’ll have to do. You can contact support about anything related to Field Nation and adding your EIN to your profile, but as it relates to building out your business structure, you can contact an attorney who specializes in small businesses, check with the secretary of state websites for your state, and check out other resources provided by the IRS.
FAQ #4: Do I have to be a Service Company to get an EIN?
No, individual providers can add an EIN to their profile and receive the Business Badge. If you already have a Service Company (SC) Badge on your profile and you add an EIN to Field Nation, your profile will show both the Service Company and Business Badges.
All right, that is everything that we had for our first EIN and business entity webinar, quick thanks to Nicole and Ben for sharing their expertise today. And thank you for tuning in.
Note: it can take up to 14 business days for a new EIN to show up in the IRS system. If you try to update your EIN on Field Nation and the verification fails, create a Support case and choose ‘Tax issues’ as the problem type to expedite the verification. You’ll need to include a copy of your SS-4 confirmation letter.
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