Discussion:Employee verses subcontractor
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Discussion Forum Index --> Tax Questions --> Employee verses subcontractor
| 8 April 2008 | |
| I just met with a new client from a referral....I am not sure if the guy needs a Priest or an Accountant! :D
Michael | |
PostingFromWork (talk|edits) said: | 8 April 2008 |
| It depends if the client wants to rock the boat with the sub-contractor. | |
| April 8, 2008 | |
| By 'the worker' you mean the subcontractor 'the kid' works with? So the kid should be an employee...and the subcontractor hires employees...for the same S corp the kid owns? Your facts aren't clear...fill in the dots. And who are you worried about? The kid? The 'worker/sub'? The others? | |
| 8 April 2008 | |
| I am confused. There is the kid, the sub-contractor, the worker and the third party subs? Too confusing this time of year. | |
| April 8, 2008 | |
| Exactly. Tell it straight and keep it straight in your own mind. | |
| 8 April 2008 | |
| but but but it all made sense when I typed it! :D That's what working on taxes until 2:30 AM will do for you. Sorry in arrears, that was bad.....hurrying on little sleep is a bad thing.
Michael | |
| 8 April 2008 | |
| I read this as the kid (say Joe) has a Schedule C business for which he pays a subcontractor (say Dave). You seem to be questioning whether this arrangement is correct or if he should be treating Dave as an employee. 1. Just because Joe is the only client of Dave's right now might not mean that will always be the case. There are lots of consultants on long-term contracts that have only one client in a given year. Plus as soon as Joe can't find Dave enough work, Dave will look to subsidize. 2. Just how much control does Joe have over Dave? Does he give him guidelines of who to bring on, or does he control who Dave brings on the project? If the former, I'd start to question Joe's real control. What I am getting at, is look closely to see if you truly have a 60/40 split. Most importantly (to me) is how does Dave want to be treated? A lot of times they want to be subs. Dave's attitude is key to how big of a problem this really is. Finally, if you want to help him out, make sure that Dave is handling being a subcontractor. By this I mean make sure that Dave has his taxes, especially estimated taxes, under control. When I first started my company I hired some young programmers. They were clearly subs, but I arranged with them to pay their estimated taxes for them so that they wouldn't be screaming come tax time. Also, give Joe guidance on how he has to treat Dave to ensure that Dave is not an employee.
My nephew is starting a landscaping business ... can you tell??? | |
| April 8, 2008 | |
| It sounds like an independent contractor relationship to me. Does Ermando issue 1099s or W2s to the other workers? | |
| 8 April 2008 | |
| Thanks guys.....great information WWtaxes. I am okay with the designation as a sub, my fear is that the owner will be reclassified and then be looking to hold me responsible. I found some research that will really help me and has some great ideas how to avoid the employee designation.
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| April 8, 2008 | |
| It's not too late to correct payroll returns for last year. Assuming, however, that 1099s and payroll have been completed, I would leave it be.
Ww, you state, "Most importantly (to me) is how does Dave want to be treated?" Do you mean just in this situation? | |
| 9 April 2008 | |
| To me, an important facet of determining employee vs sub is presenting both parties with the options and rules and let them provide input. When my husband brought on another person, this is what we did. The person chose to be a sub. He had much more freedom, which was what he wanted (he could refuse a gig at will), and he also liked the extra deductions he could take (in this case, high-speed internet and tech equipment). I try to be very straight in the discussion to not direct the outcome. Then I met with he and his wife quarterly (she also moonlighted) and calculated estimated taxes for them. So, my suggestion is that Michael should do the same with Joe and Dave and get input from them. If Dave clearly wants a W2 and no hassle, that says a lot. If he wants to be a sub, then make sure he doesn't end up owing more tax than he can pay come April every year. I had an S Corp last year whose employer forced him into it (or lose his income). They filed all the initial paperwork, then left the guy hanging, having no clue how to run a corp, nor any interest in it. A bunch of them were thinking of getting a lawyer involved. If you want to know the probability of problems down the road, talk to both parties up front. At that time you can also head off any problems of whether or not Dave intends to work for others simultaneously as well. | |
| April 9, 2008 | |
| I think that's a great way to handle it, Ww. I was concerned that if you just ask someone if they want to be a sub, they might say yes thinking they would have more opportunity to avoid paying taxes. | |
| 9 April 2008 | |
| Who pays for the worker comp? Maybe Ermando is legal and hires illegals to do the work and underpays them. They are still working for your client. | |
| 9 April 2008 | |
| I would make sure that your client holds a certificate of insurance proving the Subcontractor (Ermando)has liability insurance. He should also make sure that he gets an invoice from Ermando stating how much he owes him for the work he has done rather than from a timecard. I think you are fine with your client having Ermando as a sub. Now, how Ermando handles his part of the business as Blrgcpa mentioned is another story. | |
Scottycoyote (talk|edits) said: | 9 April 2008 |
| i agree with karen.........sounds to me like ermando is the guy with the employees.
I would make sure your client is doing as many things as he can to swing it more into the subcontractor column....invoices, business licenses, etc etc | |
| 9 April 2008 | |
| Karen258, you are kidding right??? You're seriously asking if someone in the landscaping business has a certificate of insurance proving the sub has liability insurance? Please people this is the real world not Fantasy Island. | |
| April 9, 2008 | |
| Steve, while some people can go overboard to the point of almost auditing a client when a simple tax return is being prepared, I do see the benefit of the client holding a certificate of insurance from the sub. In this case, it sounds like Ermando is handling most of the work. For 10 - 15 minutes of an office assistant's time, I think I would want a certificate of insurance if I were in that situation. Keep in mind, this would mainly be for the comfort of knowing that the sub has insurance should anything bad happen on a job and not so much for support of the contractor vs. employee issue. | |
| 9 April 2008 | |
| I'm not saying they shouldn't have it. Obviously, they should and some larger landscapers do. But, given the scenario presented (and realizing that most "landscapers" are mow and blow) you know darn well that they don't and it is completely unrealistic to expect it. | |
| 9 April 2008 | |
| I have done a lot of work for contractors and most of them have independent contractors instead of employees. One of the first things asked during a work comp audit is "where are your 1099s and certificates of insurance?" They also want to see business cards, invoices and anything else that proves they are indeed a sub and not an employee. I may live on Fantasy Island but at least I try to protect my clients from the real world of having subs reclassified as employees.
It's not Michael's responsibility to verify insurance but I feel he should inform his client about potential issues. | |
