Independent contractor & employee???

[KJ Judd]

In my experience you are either an employee or an independent contractor with respect to a business. However, I have an interesting situation. Client has associates who by a very clearly spelled out contract are independent contractors. (Client is a franchisee and the associates contracts come from the franchise. It is established business practice that associates are independent contractors.) Associates are paid a commission on sales.

Client also needs some clerical help. If she pays the associates to help her out, are these payments wages or fees to an independent contractor? I believe the client's preference would be to treat them as independent contractors.

Also, what if client's college daughter helps her out with clerical duties? For this type of sporadic work, do we need to set up payroll? Ugh!

[jainen]

Of course that's his preference

>>client's preference would be to treat them as independent contractor<<

Of course that's his preference. It LOOKS like he can avoid payroll taxes and not have to set up all that paperwork. Besides, all those darn self-help books tell him it's the only way to go.

The problems can arise so easily and without warning, and they can very seriously damage or destroy the company. Your employee trips coming in the door, and you have a worker's comp claim. Or goes off to do something else entirely, and fifteen months later files for unemployment insurance.

There is ONLY ONE way to win. If you don't want them to be your employees, have the workers register with a temp agency and hire them that way.

[sea-tax]

Or.......
Get them to all be established and licensed in the state in which you operate.

[S T]

Take a look At State Requirements

Depending on the State that your client is operating in, your client could conceivably encounter a "multitude" of problems in a few years.

Calif, for example is "seeking" out misclassified independent contractors, and assessing penalties to employers. Workman's Comp Carriers does their job for them!

Good rule of thumb is to use the SS-8 form as a guideline, utilitze that form as a questionnaire and test. You don't have to submit it. Another guideline is to also check with your State Workman's Compensation Agency to see if that "worker" fits into "Independent Contractor status , rather than employee.

Sandy

[jainen]

sales force

The sales force may well be independent contractors, although neither "a very clearly spelled out contract" nor an "established business practice" would be determinative without additional information about the actual business relationship. The clerical staff are almost certainly not independent contractors. Individual professionals such as a bookkeeper who has other clients might be (not necessarily, though), and temps are usually employees of the agency.

[S T]

Look to definition of employee

Client also needs some clerical help. If she pays the associates to help her out, are these payments wages or fees to an independent contractor? I believe the client's preference would be to treat them as independent contractors.

Also, what if client's college daughter helps her out with clerical duties? For this type of sporadic work, do we need to set up payroll? Ugh!

Clerical help would almost always be classified as an employee. Go to the points defined by your state and also Federal, employee vs contractor, control, hours, etc. As Janien stated in another post, if the client needs some extra help for this "job description" go through a Temp agency, the Temp Agency will absorb the costs of payroll and reporting, even though the client will pay for in the hourly rate.

Client's daughter, would be more than likely be a "wage earner" i.e. employee. If under the age limits and meets the requirements would have no payroll taxes, depending on the entity status of the employer. That is often used. Still payroll, form 941 and form 940, etc. See Circular E and your appropriate State reference.

Sandy

[dyne]

s/e or employee

Years ago IRS had a project of auditing suspected employers and assessing payroll tax
which was not paid on people who were listed as sub-contractors. Millions of dollars
in tax and penalties were assessed. At that time 20 common law factors were used to
determine if the workers were employees. In recent years the classififying of workers
as independent contractors has become rampant it seems. I had a client several years
ago who was clearly an employee and had been treated as an employee for 15 years
and suddenly his employer issued him a 1099C and reclassified him as being
an independent contractor. He drove a truck with the employers logo on it, wore
a uniform with the employers logo on it, etc. IRS assessed self-employment tax against him. I believe the reason was because the employer had been audited and IRS failed to reclassify their workers as employees. IRS wanted the tax from someone and did not care who paid it. The taxpayer requested an appellate hearing and I laid out the law and
authority. The appeals officer said that I was exactly right but IRS expects my client
to pay the tax anyway. The client went to a local tax attorney who advised that he give
up as the attorney's fee would exceed the tax. My point is the 20 common law factors were ignored in my case by IRS so they will ignore the law when they wish.