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Who's Considered A Sole Proprietor?
Are sole proprietor contractors required by law to pay prevailing wages and submit eCPRs for work done on public works projects?
Sole proprietorship and general partnership companies without employees are required to pay themselves prevailing wages, in accordance with Labor Code section 1774 that states that all workers must be paid prevailing wages. If the worker is also the employer and sole proprietor for whom no payroll exists, the owner should submit eCPRs and must show that that the rate of pay is at or above the required prevailing wage. (The courts have ruled that sole owner companies cannot pay less than the prevailing wages. As such, any contract that is entered into that undercuts the labor component is unlawful.)
What if the company hasn't hired any workers yet, so the owner does all the work? What if the company has employees, but the owner/partner/corporate officer does some work as well?
In the first situation, treat the business as if it were a sole proprietorship and do as explained in the following question. In the second situation, you must first determine if the work done by the owner/partner/officer falls into the category of prevailing wage work.
If the work was prevailing wage work, then do as listed below assuming the worker is the owner. In the situations that the worker is the corporate officer who receive a fixed salary, you should annualize the salary to calculate the hourly rate. In the events that the hourly rate is less than the prevailing wage rate, the worker should receive the additional payment to meet the required amount.
As a sole proprietor, how do I calculate my pay rate?
You should divide your profit before labor costs (i.e., the amount of contract less fixed cost and variable costs) by the total number of hours you worked on the public works site. Please note that if your labor profit goes below the prevailing wage rate, you could be subject to public works penalties for failing to pay the correct prevailing wage rate. You need to attest under penalty of perjury that you are at or above the required prevailing wage rate for the craft/classification worked.
Do I have to issue myself a paycheck?
An individual who performs skilled or unskilled labor on a public works project is entitled to be paid the applicable prevailing wage rate for the time the work is performed, regardless of whether the individual holds a particular status such as partner, owner, owner-operator, independent contractor or sole proprietor, or holds a particular title with the employer such as president, vice-president, superintendent or foreman. In accordance with Labor Code 1774, the contractor to whom the contract is awarded, and any subcontractor under him, shall pay not less than the specified prevailing rates of wages to all workmen employed in the execution of the contract.
What happens if I lose money on the job?
The courts have held that sole proprietors cannot undercut labor costs in order to get a public works project. This would be out of compliance with public works laws and would give an unfair advantage to businesses that have no employees.
What if I do not have employees or a FEIN number?
You will need to use your social security number in order to report your hours in the DIR's online eCPR system.
Am I subject to payroll taxes?
No, as a sole proprietor, you are not subject to payroll taxes, but you may be subject to income taxes.
Do I have to employ apprentices?
Generally speaking, yes. However, the exemptions to employ apprentices are listed below.
- Labor Code 1777.5 does not apply to general contractors whose contract is under $30,000.
- When the craft or trade is not apprenticeable.
- When the contractor holds a sole proprietor license and no workers were employed by the contractor. In other words, the contractor performed the entire work from start to finish and worked alone.
- When the project is a federal project and the funding of the project does not contain any city, county, and/or state monies unless the project is administered by a state agency in which case the apprenticeship requirements apply.
- When the project is a private project not covered by the definition of public works as found in Labor Code section 1720.
Consulting Services We Provide
- Review public works preconstruction contracts
- Monitor DIR contractor/subcontractor certified payrolls
- Audit labor classification for each worker employed
- Review DIR pre-DAS 140/142 submissions
- Review CAC training fund contributions form CAC-2
- Review DIR Fringe Benefits Statement PW-26
- Monitor DIR wage determinations
- Audit fringe benefits allowances
- Review DIR holiday payment requirements
- Audit DIR travel & subsistence requirements
- Caltrans Labor Compliance
- County of Sacramento Labor Compliance
- City of Los Angeles Labor Compliance
- Los Angeles Unified School District Labor Compliance
- Federal Davis-Bacon Project Monitoring
- Federal DBE Implementation & Review
- Federal FAA AIP Goal Setting
- DIR & Davis-Bacon Training
- DIR Civil Wage Penalty Review
- Local-Hire Review (e.g., San Francisco)
- Skilled and Trained Workforce
Give us a call to discuss your labor compliance requirements.
This email is intended for general information purposes only and should not be construed as legal advice
or legal opinions on any specific facts or circumstances.