So before I give you another accounting rule we are enforcing, let me say the goal is to protect your investment! We live in a very litigious society and need to be aware of potential risks and ways to protect our assets. Commonwealth employees are insured through workers' compensation policies and also provided regular training regarding workplace safety. Another area we are striving to improve risk management and compliance is in the area of hiring contractors. When a contractor is hired, the onsite manager must obtain verification that the contractor is licensed, bonded, and insured. In addition, a Form W-9 must be provided for purposes of reporting non-employee compensation on a Form 1099-Misc at the end of the year.
The downturn in the economy resulted in many contractors allowing their insurance and licensing to lapse. We are currently working on two projects to confirm all contractors are still in compliance. The first will be a "preferred vendor" list by location. Commonwealth is compiling lists by geographic areas of approved vendors so in an emergency situation your onsite manager or regional manager knows what vendors have up-to-date information on file. Secondly, we will be combining this vendor list with our accounting program to alert us when we need to update the insurance information. The reason to remind our customers of this policy is that some may have "tried and true" contractors that would not be eligible to work at the communities unless they can provide the necessary information requested OR become an employee to complete the task you wish to hire them for. I mention the latter as it is a legal remedy to tackling some of the small jobs that may be better served by hiring specialized temporary employees through agencies. Another option is hiring an individual on a task by task basis for their special skill. Commonwealth wants to be sure we are doing our best to protect your investment by limiting your risk exposure, both legal and financial, associated with contractors working at your communities.
Another reminder is that we do send 1099-Misc forms to all contractors annually. The form 1099-Misc reports all non-employee compensation. Amounts paid for employee compensation are reported on a Form W-2. Employees cannot receive a 1099-Misc and Form W-2 from the same employer for similar work. In order to keep away from any proof of control issues, our company policy is to send a W-2 to all employees and make sure all compensation for that individual runs through payroll. All independent contractor payments are reported on a 1099-Misc.
Article provided by Kathleen Landau, Accounting Manager for Commonwealth Real Estate Services since 2009. Kathleen brings over 20 years of accounting experience and knowledge to the Commonwealth team, and as a multi-site property owner herself, understands the unique needs facing property investors and small business owners.