Discussion:Employee 'vs' Independent Contractor

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Discussion Forum Index --> Tax Questions --> Employee 'vs' Independent Contractor


Truthseeker (talk|edits) said:

21 June 2006
I need a little help on the subject 'employee status'. I have a client who employs temporary help one day a week and pay them by check. Is the employer required to collect federal withholding; SSI; FUTA; etc... I don't think the payout amount is more than $30 per day. Any input would be appreciated.

JR1 (talk|edits) said:

21 June 2006
By Fed rules, if they are really temporary, no. But temporary does not mean the same person week after week after week...

If any one gets to $600 for the year, 1099 requirements kick in.

JR1 (talk|edits) said:

21 June 2006
Answering your question here, since your page doesn't exist yet for pm purposes..that's the age old question, "When does a 'temporary' laborer become an employee?" I don't know. If a guy is working one day a week for two months...that's getting all over the gray area. Definitely a 1099 will be required, make sure your client gets the name, address, and SS# before cutting that check that goes over $600...should they be on payroll? The state labor department would say yes, but they think everyone's an employee anyway. I'd review the SS-8 and just work your way thru that to come to a fair conclusion. Realize that even if Fed rules indicate you're ok as temp, not on PR, the first guy who gets ticked and goes to file unemployment will bring all manner of volcanic fire and ash down on your client. . .

Truthseeker (talk|edits) said:

21 June 2006
Not to beat a dead horse, but I noticed you didn't mention anything regarding a W2? I'm pretty clear on the 1099, not so for the W2.

Thanks anyway.

JR1 (talk|edits) said:

21 June 2006
That's the whole issue. If you decide that they should be on pr, then a W2.....

Warren (talk|edits) said:

21 June 2006
If they are an employee then they get a W-2 regardless of how much or how little that they are paid.

DZCPA (talk|edits) said:

21 June 2006
Not employees. 1099 them.

Solomon (talk|edits) said:

21 June 2006
W-2 unless the person holds himself or herself out to the public and works other places as well in similar circumstances, then may be self employed and 1099.

JR1 (talk|edits) said:

21 June 2006
You see, now, TS, why you need to make this call yourself...DZ's taking the usual position of the biz owner, and Solomon's taking the position of the state labor dept's. See the IRS SS-8...

Dennis (talk|edits) said:

21 June 2006
Somehow I can't see the IRS with the authority to supercede a state labor department. New York would require this kind of casual labor to be covered under workers' comp and disability. Huge penalties for non-compliance.

JR1 (talk|edits) said:

21 June 2006
Different definitions, Dennis. Often, Fed law indicates that someone is independent, but the states follow an ABC law which is totally different, and usually requires just about anyone to be an employee. This is the sticking point in the neat idea of one-stop payroll reporting...the states won't give up their pro-employment definitions. And you're right about the penalties. For while you may indeed be ok on the Fed level...when a guy files for unemployment, it kicks open a dept. of labor audit, where you lose. Then, the state kindly sends that info to the Feds, who then assess penalties for failure to file and pay payroll taxes. You can usually win that on appeal if you fit the Fed rules...but it's a lot of paperwork, time, and money.

Sandysea (talk|edits) said:

21 June 2006
To play it safe, I would define the person as an employee. If, in the future, this relationship still exists, then the "employee" has more rights than the "employer". Some people are, by nature, treated as independent contractors, but if this business owner is using this person week after week, month after month and this person does not have a business of their own that he is writing checks to a dba or a corporation, then there is a higher than average risk that at some point, this could be treated as an employee-employer. Do as JR says...review the "tests" to determine if indeed this could be an independent contractor...if not, I would err on the side of conservative :)

Solomon (talk|edits) said:

21 June 2006
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

JR1 (talk|edits) said:

21 June 2006
Great link, Solomon. Could have saved us a lot of words...

DZCPA (talk|edits) said:

21 June 2006
12 hours a month of work does not seem like there is much of an employee/ employer relationship. They do have at least an additional 148 hours a month available to work for others.

Truthseeker (talk|edits) said:

21 June 2006
To all: I didn't mean to open a can of worms, but you see the various comments. I guess my concern is for the small business client who's just trying to employed a temp helper for $30 a week and not having to spend alot of time on payroll filing. (Is a paper boy helper an employee earning $30 a week?)

Sandysea (talk|edits) said:

22 June 2006
To keep it clean, does your client have to pay the person hourly? Can they just pay them $30.00 per week (based on so much work done)??? If it is just a paper boy helper or any other insignificant person, then it would be much less likely that this person is going to press the issue to be an employee.

Just mho :)

Solomon (talk|edits) said:

23 June 2006
Paper boys are not employees. Sec. 3508(b)(2)(A)(iii)


Note: At this time, you can only link to Sections, not subsections, etc. - Tim Doyle, TaxAlmanac Moderator - Talk to me 13:34, 23 June 2006 (CDT)

Morgan (talk|edits) said:

13 July 2006
What if it had been a one time charge for the same 30 dollars? We recently paid a younger kid, 17, to do basic labor for one afternoon in the warehouse. (Sweep, mop, etc)

But both these scenarios made me wonder about insurance. Are these independant contractors covered by basic liability and etc while in the shop?

Death&Taxes (talk|edits) said:

13 July 2006
Morgan, my workmen's comp policy asks the specific question about the dollar amount paid subcontractors. If the subs do not provide a certificate of insurance, they would be covered by my policy. Most of my clients are individuals; I do few businesses. There is nothing worse than explaining to a parent why their son or daughter must pay double the social security tax because they received a 1099-Misc for $950 for what was essentially part time work in an office. And then our friends at the City of Philadelphia horn in and cite the need for the kid to have a $250 Business License and pay business taxes. To avoid this I might use Form 4137 and list the $950 was wages, but this begs the question as to why the employer could not do the right thing.

Morgan (talk|edits) said:

13 July 2006
What we ended up doing, in an effort to cover all the bases, was hiring him as an employee and taking it to our payroll service. However that means that he paid taxes on his eventual total of only 12 hours, and we actually paid more to place him on payroll and then remove him from it then he actually got to take home.

I was hoping to simply avoid that for the next "spring cleaning" because it's a one time amount WAY under the 600 threshold. In retrospect it would have been significantly easier to have hired someone from a temp place at fourteen an hour and have done with it. The price would have come out the same as well.

JR1 (talk|edits) said:

July 13, 2006
A one time worker is NEVER an employee. Just can't be...at least not in my life.

Taxguy1024 (talk|edits) said:

13 July 2006
A one time worker WILL be an employee....if you get a UC audit....

Skypilot (talk|edits) said:

28 October 2008
I've issued 1099s to an individual who lives overseas and does web work and editing for my on-line e-zine. I don't control his hours - I don't even know his work hours, since I only care about the end results, he can work for others at his discretion in any manner he pleases, I pay him a monthly fee - can differ each month and he performs the work in any manner he pleases, as long as I get the result I need - and he pays for his own expenses out of his own pocket and is not reimbursed by me. He has worked in this manner for 3 years and works from home. He is American, but resides in Europe. Typical publishing industry practice uses freelancers on a regular basis, for writing, editing, web work, photography needs etc...He and I are executing an Independent Contractor Agreement, prompted by my tax accountant...Could he be construed as my "employee" or would the IRS more likely agree with the IC role that he and I have both considered the deal? Thank you!

Blrgcpa (talk|edits) said:

28 October 2008
Your acct told you. That's what you pay for.

Natalie (talk|edits) said:

October 28, 2008
Skypilot, given the circumstances you describe, I think it is possible the IRS would see that as an employee-employer relationship. How likely that is to happen, I don't know.

Irsfixer (talk|edits) said:

28 October 2008
You have the weight of the common-law factors on your side. I think it is unlikely they would make an assertion that they are employees.

Skasselea (talk|edits) said:

29 October 2008
As far as I'm concerned this one is clear cut; Independent Contractor.

Natalie (talk|edits) said:

October 31, 2008
The one piece that seems to be missing from Skypilot's arrangement is that the individual appears to be working just for Skypilot. If that person were providing services for others, my response would be different.

Sandysea (talk|edits) said:

2 November 2008
But that is meeting only ONE test Natalie imho. You may be offering services to others, but only have one client. How many of us in the beginning then could be held to be the "employee" of our one and only client since we only provided services to ONE?

CrowJD (talk|edits) said:

2 November 2008
Time, place and manner. An employer controls the time, place and manner of the work(er). For an IC, sometimes the time and place are controlled, but not the manner: that's still an IC, but just squeaking by as one. In the classic case, as with most of us on here, the "client" does not control time, place or manner. We are hired, and we do the work when, where and how we like to do it.

So, if you control time, place and manner, you are an employer, whether they work one day a week, or five.

Natalie (talk|edits) said:

November 2, 2008
When I first read that post from Skypilot, I was thinking it sounded like the ultimate in a flex-time position. Granted, an IC does not need to have other clients to be considered an IC, but the question was "Could he be construed as my "employee" . . .." I still think the answer to that is yes, although perhaps not likely.

Irsfixer (talk|edits) said:

2 November 2008
There was nothing in the original post about the contractor working exclusively for the poster.

Natalie (talk|edits) said:

November 3, 2008
You are correct, Irsfixer, that Skypilot does not come right out and say that the IC is only working for him. What he does say, however, is "he can work for others at his discretion . . .." I may be reading into that. It's also possible that Skypilot doesn't know whether the IC has other clients.

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