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California Considers New Business Classification

Contract service provider classification would make federal contracts more accessible to small business, say proponents

Opinions expressed by Entrepreneur contributors are their own.

The California State Assembly is currently considering legislation to create a new business classification that would make it easier for small businesses to contract with the government and other firms: contract service provider. "The CSP classification will establish a clearly identifiable [small-business] and microbusiness category whose contracting with government and other firms would not be confused with individuals who have not formed a business enterprise," says Brenda St. Hilaire, public policy chair for NAWBO-OC, a women-owned business advocacy group that, along with other NAWBO-California chapters, introduced the bill. "In short, the contract service provider classification provides a safe harbor for business owners engaged in business-to-business relationships."

According to St. Hilaire, there are antiquated labor and employment regulations on the books that fail to distinguish small businesses from independent contractors. "California's labor regulations define working agreements between larger companies and smaller enterprises not as contracting arrangements, but as independent contractor or employer/employee relationships," she says.

Distinguishing between independent contractors and small-business owners is a problem all over the United States, including at the federal level, says St. Hilaire. NAWBO-California hopes its efforts at the state level will prompt action in other states as well. According to NAWBO, more women currently own or are starting their own businesses in California than in any other state, and if passed, this legislation could benefit about 800,000 women-owned businesses in the state.

If adopted, A.B. 1643, which is currently pending in the Assembly Committee on Labor and Employment, small businesses could begin benefiting from the new classification on January 1, 2004. "The freedom to subcontract, partner and/or create teams for the purpose of pursuing more significant projects is undermined by fear and uncertainty associated with the application of existing law," St. Hilaire says. "Such an atmosphere does not promote the business vitality and expansion that California's economy needs today."

To qualify as a contract service provider, businesses need to be at least two years old, be certified as a small-business entity and/or have paid the requisite business taxes, and have been issued a state business license.