Independent Contractor/Employee

[skhyatt]

Have a TP who is being offered a job installing fences. They have offered to pay him so much per hour, but are telling him they will issue him a 1099 at the end of the year for his pay and will not withhold any taxes, but will cover him with workers comp insurance. I told him if he went along with that, that he would have to be considered self-employed and pay SS taxes, etc., but this doesn't sound right to me. Sounds like the employer is trying to avoid the W/H. Am I missing something?

[Chief]

1099 misc

You should caution him to get enough pay per hour to cover the employer's share of social security and Medicare tax. He needs to be prepared to pay that at the end of the year. This is normal work patterns for the trades.
I once had the hair brain idea of working with these contractors: plunbing, roofing, carpentry. With experiences with a roofing person I never want one again. It's not fair to make generalizations. I was happy to lose the roofer's business to his new wife's tax preparer.
I don't need business bad enough to take on private contractors for the trades. If you take on this guy make sure he pays well.

[skhyatt]

I did tell him that if he took this job, he would be considered self-employed and have to pay his own SS taxes and that the taxes would have to be paid at least quarterly. My thought is that, legally, the employer can't or should not do this. I believe this would be an employer-employee relationship.

[taxmandan]

In order to be an IC, state law would require him to have his own Contractor's License, at least here that is the case. No license, no self-employment, working under someone else's license makes him an employee. He should keep looking for work, he'll get caught up in a big legal mess if he goes through with this job.

[S T]

You can

EDD in Calif has a website that you can anonymously post an employer that is abusing the independent contractor/employee status.

Your t/p if in Calif, would have to have a State Contractors License # to be considered as an Independent Contractor. I believe Work Comp charges the employer if they do not have a state Contractors License, and that is why the employer is stating that he will be covered for Work comp.

The employee probably won't have too much difficulty, but the employer will definitely have a problem if EDD ever audits them.

Your t/p should not go to work for this employer unless they agree to place him on a legitimate payroll and withhold the payroll taxes.

Sandy

[outwest]

Agree with a twist..

I caution them that if the employer is willing to skate and cheat the government with all the enforcement powers they have, what makes him think he won't try to cheat him, the common worker?

[skhyatt]

Agreed

I agree with all of you and am trying to explain the situation to the TP. Not sure what he is going to do. Thanks for all the feedback.

[LCP]

My experience (over 5 years ago now) with W/C insurance is that a business is required to report payments to contractors who do not prove that they are covering themselves. That was the case whether or not there truly was a valid independant contractor relationship.

[oceanlovin'ea]

Working schedule

If he is going to be an independent contractor, then the owner of the fence compnay can't tell him what time to come to work or make any demands he would make of an employee. He can assign him a job and leave it to his discretion as to the hours he works.

One of the sure signs of an employee is that the boss says be here at 8 AM and work until 5 PM and tells him what jobs to do on what days.

I agree too that he should make sure the hourly rate will cover what he wants to get paid PLUS his SE taxes.

In Florida there are a LOT of people that work as independent contractors that shouldn't, but people do it because if they don't someone else will work that way and they need the job. Not fair, but seems to be a fact of life these days.

[erchess]

There used to be a neat little trick

the worker could pull in a situation like this. You used the Form normally used by waitstaff for unreported tips. You paid only the employee's half of the Social Security and Medicare. Naturally you did this only after you were through working for this Firm because the IRS would show up unannounced and investigate the situation of each subcontractor the Firm used. Of course there are hefty fees for each case of abuse, and the Firm may encourage your former colleagues to treat you as a pariah.