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  • #16
    Re: 1099 Contracting?

    IRS regulations do not allow businesses to 1099 people that really should be W2 employees. They have a series of conditions that have to apply before you can 1099. Back some years ago, this was well-known in my field (engineering consulting) as "the 20 Questions". Of course, a business owner may choose to ignore this and may never get caught... but in general it's not a good idea to screw with The Man.

    You CAN hire people from an employment agency. Keep in mind that the employment agency is marking up the direct labor rate they pay for that person that they "supply" to you. This covers the costs of that worker, but also remember that the agency is making a tidy profit. It pays to understand what you're getting with the agency compared to your costs. Many times you can add a higher-skilled W2 employee for the same actual money. If you are in a situation where you don't have, say Worker's Comp to pay (i.e., you're a family business with no non-family employees), then the agency route could make sense.

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    • #17
      Re: 1099 Contracting?

      This is one of the great flaws of American business attitude, IMO. It is largely illegal, but in actuality all of the "favor" is on the side of business and one really has to have thier "ducks in a row" if you're on the receiver end of a 1099 and want to take legal action.

      My ex employer started doing this back in 1982 when business was getting bad. It laid off a number of employees, brought them all back a couple of days later, under "contract" and then paid them every couple of weeks, with no deductions and of course no benefits. No one told the employees that they would be individually responsible for taxes, worker's comp, etc. They were simply told that the company was doing them all a favor by paying them directly and therefore "keeping them off the manpower count". Only when they finally let these guys go a year or so later did any of them realize how much they were screwed over. When they went to file for unemployment, they were told that they all had been "self-employed" for the last year or so, and that not only didn't they qualify for unemployment insurance, but that they owed back taxes (Self-Employment tax, Social Security, etc.) Not one of these poor fellows had a clue. I know the state labor dept was upset with the company, but I don't know the outcome of that and whether or not any of those guys got stuck with one heckuva bill.

      At the time, I was doing a lot of freelance work, in addition to regular employment. As I understood the rules, the only way I could hire help under a 1099 was to have us both agree to the price and number of hours it would take them to do the task. While I could approve or disaprove their work, I could NOT supervise their hours, or regulate their activity in any way... like telling them when "their day" started and stopped or how long their lunch hour could be, etc. In other words, I must treat them as equal contractors and NOT as employees.

      After 27 years with my employer, I was layed off in 2000, but immediately brought back as a "consultant", for which I protested in writing. They dictated the hourly wage, the hours that I would be expected each day and week, and where I would be working. It was a matter of "sign here, or hit the street".

      I immediately contacted the state labor dept and the IRS and was advised to take the job, but document. So, with no other work available in our area, I took the job, I made it clear that it was under duress and that I fully expected to have my "full-time" status returned and they needed to rehire me as an employee. For three years they kept promising, but in the end I worked for that time as a "consultant". No benefits of any kind.

      I fully documented those years, keeping copies of my work records, awards, transactions with management and customers, and maintaining phone and other records pertinant to my status as a full-time employee. In addition, I took photos of my office, and other activities within the facility. When they finally dumped me, they immediately told the state labor dept that I was a "subcontractor" and of course, my eligibility for unemployment insurance was questioned. My records clearly proved that I was not and with no contest, there was no further delay in unemployment compensation.

      However, the government isn't the least bit interested in making any thing right with an employee as far as other benefits are concerned, and of course, the IRS already had their money (quarterly payments by me), so other than taking the company to task for their misadventure, there was no concern for my losses. Similarly, the company wasn't about to even begin to talk to me, as I was nothing but a "trouble-maker" in thier eyes.

      But, the "documentation" allowed me to seek legal counsel and after two years my "differences" were settled out of court.

      Bottom line, if you need to hire help, you should just own up and hire an employee and handle that properly with a W2. It's good for you and it's good for your help. IF you only need someone for a short time, then hire someone through one of the "pimp agencies"... Kelly, Manpower, Temp Force or whatever. If you don't want to go that route and pay those extra premiums for "handling", then scope out the job for the individual, state what you are willing to pay and what you expect and then take your chances that the worker will perform satisfactorily.

      But, if you supervise them like you would an employee, directing thier activities on an hourly basis, and provide them with tools and allow them to act as employees or representatives for your business... then you are at risk if you attempt to 1099 them.

      As a legal employer, if you find your competitors are getting an edge by unfairly employing 1099's... report their butts. I have very little sympathy for those who screw over their workers.

      I hope this helps,

      CWS
      Last edited by CWSmith; 10-07-2010, 10:15 PM.

      Comment


      • #18
        Re: 1099 Contracting?

        Originally posted by CWSmith View Post
        This is one of the great flaws of American business attitude, IMO. It is largely illegal, but in actuality all of the "favor" is on the side of business and one really has to have thier "ducks in a row" if you're on the receiver end of a 1099 and want to take legal action.

        My ex employer started doing this back in 1982 when business was getting bad. It laid off a number of employees, brought them all back a couple of days later, under "contract" and then paid them every couple of weeks, with no deductions and of course no benefits. No one told the employees that they would be individually responsible for taxes, worker's comp, etc. They were simply told that the company was doing them all a favor by paying them directly and therefore "keeping them off the manpower count". Only when they finally let these guys go a year or so later did any of them realize how much they were screwed over. When they went to file for unemployment, they were told that they all had been "self-employed" for the last year or so, and that not only didn't they qualify for unemployment insurance, but that they owed back taxes (Self-Employment tax, Social Security, etc.) Not one of these poor fellows had a clue. I know the state labor dept was upset with the company, but I don't know the outcome of that and whether or not any of those guys got stuck with one heckuva bill.

        At the time, I was doing a lot of freelance work, in addition to regular employment. As I understood the rules, the only way I could hire help under a 1099 was to have us both agree to the price and number of hours it would take them to do the task. While I could approve or disaprove their work, I could NOT supervise their hours, or regulate their activity in any way... like telling them when "their day" started and stopped or how long their lunch hour could be, etc. In other words, I must treat them as equal contractors and NOT as employees.

        After 27 years with my employer, I was layed off in 2000, but immediately brought back as a "consultant", for which I protested in writing. They dictated the hourly wage, the hours that I would be expected each day and week, and where I would be working. It was a matter of "sign here, or hit the street".

        I immediately contacted the state labor dept and the IRS and was advised to take the job, but document. So, with no other work available in our area, I took the job, I made it clear that it was under duress and that I fully expected to have my "full-time" status returned and they needed to rehire me as an employee. For three years they kept promising, but in the end I worked for that time as a "consultant". No benefits of any kind.

        I fully documented those years, keeping copies of my work records, awards, transactions with management and customers, and maintaining phone and other records pertinant to my status as a full-time employee. In addition, I took photos of my office, and other activities within the facility. When they finally dumped me, they immediately told the state labor dept that I was a "subcontractor" and of course, my eligibility for unemployment insurance was questioned. My records clearly proved that I was not and with no contest, there was no further delay in unemployment compensation.

        However, the government isn't the least bit interested in making any thing right with an employee as far as other benefits are concerned, and of course, the IRS already had their money (quarterly payments by me), so other than taking the company to task for their misadventure, there was no concern for my losses. Similarly, the company wasn't about to even begin to talk to me, as I was nothing but a "trouble-maker" in thier eyes.

        But, the "documentation" allowed me to seek legal counsel and after two years my "differences" were settled out of court.

        Bottom line, if you need to hire help, you should just own up and hire an employee and handle that properly with a W2. It's good for you and it's good for your help. IF you only need someone for a short time, then hire someone through one of the "pimp agencies"... Kelly, Manpower, Temp Force or whatever. If you don't want to go that route and pay those extra premiums for "handling", then scope out the job for the individule, state what you are willing to pay and what you expect and then take your chances that the worker will perform satisfactorily.

        But, if you supervise them like you would an employee, directing thier activities on an hourly basis, and provide them with tools and allow them to act as employees or representatives for your business... then you are at risk if you attempt to 1099 them.

        As a legal employer, if you find your competitors are getting an edge by unfairly employing 1099's... report their butts. I have very little sympathy for those who screw over their workers.

        I hope this helps,

        CWS
        Great post. It is very rampant here in the construction in the remodel industry. Think about all that is done to a house.

        Drywall.
        Painting.
        Flooring.
        Roofing.
        Plumbing.
        Electrical.
        Carpentry.
        Etc. Etc. Etc.

        These 1099ing companies have control & provide tools, materials, supervision of jobs, scheduling, & payments.

        Then want to make it very clear that "they don't have any employees". I've been told by more than one in the same or similar fields that they do it and I should. Never have 'cause it didn't seem right to me even before I did any research.

        So for any readers, if you have any work done, ask the person that's your main contact for the business are they 1099ing their employees.

        Why?

        The business is going to remove themselves from all responsibility for the people working if something bad should occur. Their actions or well being. And if the 1099ed workers do not carry proper insurance then you can become responsible for anything that occurs while they are there.

        Uncovered 1099ed painter falls off a ladder, he/she could seek recourse against your house or homeowners insurance.

        Uncovered 1099ed plumber floods your house or burns it down, you can sue them but they probably won't have enough to cover it. The 1099ing contractor and his/her insurance company is going to say they were just subcontracting. And your homeowners will deny also.

        Scenarios to think about.

        Here in Nunya, I'm told that they are beginning to focus on this more and try to stop any "grey area illegal practices".

        Been interesting to read all others posts. Thanks.


        J.C.

        Comment


        • #19
          Re: 1099 Contracting?

          can a 1099er for lack of better terms actually market himself as a plumber without a license? or even a "contractor" for that matter, wouldnt they be unskilled labor?

          Comment


          • #20
            Re: 1099 Contracting?

            Originally posted by wrench spinner View Post
            can a 1099er for lack of better terms actually market himself as a plumber without a license? or even a "contractor" for that matter, wouldnt they be unskilled labor?

            Plumber without a license: To me the license has no bearing on the 1099 requirement. Doesn't matter if you have no license of any kind. If a person is giving you "supervision, direction, requiring when you are on the job, supplying tools, materials, scheduling" etc. then you are an employee. Even if you are a part-time employee.

            If you are an actual sub or sub-prime to me then you know what to do, have your own tools, truck, materials, own hours, insurances, pay your withholdings, etc.

            If you don't, then you are an employee.


            J.C.

            Comment


            • #21
              Re: 1099 Contracting?

              I just hire other plumbing contractors. I get a better rate, and submit my figures to the insurance company audit at the end of the year. They then charge me more...

              Comment


              • #22
                Re: 1099 Contracting?

                I sub contract for a buddy of mine who is in the trade, and has his own business. Big jobs he calls me in, and I get a 1099 at the end of the year and vice versa if he works for us.

                I have enough help in where I would never need an employee. There are a handful of Plumbers I could easily subcontract for or vice versa, which makes it easier on everyone.

                After seeing what my father went through with employee's over the years, I want no parts of it.

                Comment


                • #23
                  Re: 1099 Contracting?

                  Some reference material for anyone interested

                  http://www.irs.gov/businesses/small/...=99921,00.html
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