Surely there’s someone on my flist with knowledge of taxes and corporate employment:
The company I work with, and in which I’m a minority partner, is starting to make noises that they want me in the office religiously from 9 AM to 5 PM. Now, they’ve made noises like this in the past, which I’ve largely ignored, but the noises they’re making these days are getting louder and more damaging to my calm.
Last year, I was paid on a 1099. I’m not an accountant, but my understanding is that an independent contractor isn’t considered an independent contractor if the folks paying him control when he is on premises and/or how he does his job; legally, or so I believe, under those circumstances a person is considered to be an “employee” and is paid on a W-2.
I’m also told that the IRS takes a very dim view of folks who label people “independent contractors” when they are actually “employees,” and that there’s a certain amount of hot water that awaits such folks. That being the case, it’d seem I have a degree of…leverage in maintaining a certain level of flexibility with regard to when I am and am not in the office, particularly in light of the fact that they still owe me money as it is.
So what’s the scoop? I know someone out there must be up on this stuff.
Short answer: There’s not enough information in this post to clearly and definitively answer your question. In tax law, when a situation is complicated enough that multiple independent factors affect the ultimate result, we use a term called “facts & circumstances”. It’s really a fancy way of saying, “it depends”. Nearly all employee/contractor determinations are dependent on facts & circumstances. This article from IRS gives some background about the whole employee/independent contractor issue, and also some information about how to get more information and even how to get a ruling from IRS about your individual situation. If you have any further questions, I can try to answer them, but I am not licensed in your jurisdiction and I would highly suggest hiring a licensed professional (CPA or EA) for a brief consultation or asking IRS for a determination rather than relying on random advice from the internet. That said, a set schedule is a strong indicator of employee status over contractor status, in most situations. 🙂
Hey- I recognize that nick. I used to read your LJ awhile ago – I always like to see what my US counterparts are up to. Bummer about your stalker, but hope you have a productive tax season since it’s just around the corner 😉 (and good answer!)
I’ve actually quit tax. Now I’m the Business Manager for a tiny non-profit. A little less intellectually challenging, but I finally work for a company I believe in.
The stalker was my ex, but he finally got bored enough to quit following me around the internet, I think. It’s probably been at least two years since I last got any sort of message from him.
I had the same problem with my ex when I first came on LJ – but that was over 5 years ago and now I just like to post for my kids etc.
Too bad you quit tax – it’s all part of the fun, commiserating with other tax people but hopefully your job now is less stress 🙂
I still do a few returns every year as a hobby, but I don’t miss tax season at all. My new job is stressful in different ways, which is a nice change for now.
From looking at the links other folks have left, it seems pretty cut and dried that I’m an employee for tax purposes. They take up all my time, provide the tools and office space, and control both the means and manner of my job performance, and so on.
Which means when they paid me on a 1099, I took a tax hit I shouldn’t have.
Reckon it’s time to have a conversation with them about that.
Short answer: There’s not enough information in this post to clearly and definitively answer your question. In tax law, when a situation is complicated enough that multiple independent factors affect the ultimate result, we use a term called “facts & circumstances”. It’s really a fancy way of saying, “it depends”. Nearly all employee/contractor determinations are dependent on facts & circumstances. This article from IRS gives some background about the whole employee/independent contractor issue, and also some information about how to get more information and even how to get a ruling from IRS about your individual situation. If you have any further questions, I can try to answer them, but I am not licensed in your jurisdiction and I would highly suggest hiring a licensed professional (CPA or EA) for a brief consultation or asking IRS for a determination rather than relying on random advice from the internet. That said, a set schedule is a strong indicator of employee status over contractor status, in most situations. 🙂
I don’t know much about taxes, but I know that I’m often paid on 1099 and I’m still expected to be at a certain location at a certain time or I don’t get paid.
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
http://smallbusiness.findlaw.com/business-forms-contracts/business-forms-contracts-a-to-z/form1-21.html
http://www.dir.ca.gov/dlse/faq_independentcontractor.htm
http://www.taxprophet.com/faq/980920.htm
Oops, that last one should have been http://www.taxprophet.com/apps/active2/ – it’s a flowchart to help you determine if you are an I.C. or an employee
I don’t know much about taxes, but I know that I’m often paid on 1099 and I’m still expected to be at a certain location at a certain time or I don’t get paid.
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
http://smallbusiness.findlaw.com/business-forms-contracts/business-forms-contracts-a-to-z/form1-21.html
http://www.dir.ca.gov/dlse/faq_independentcontractor.htm
http://www.taxprophet.com/faq/980920.htm
Oops, that last one should have been http://www.taxprophet.com/apps/active2/ – it’s a flowchart to help you determine if you are an I.C. or an employee
http://www.irs.gov/businesses/small/article/0,,id=179115,00.html
http://www.irs.gov/businesses/small/article/0,,id=179115,00.html
Contractor should have a contract
I would think something like that would be covered in an employment contract. If you are working as an independent contractor – in charge of your own taxes, health care, etc — then I would think you would have, or at least want, an explicit contract with your employer.
And if they do want you in at certain times or be shown the door, you can ask them how they structure their 401(k) and when your health care kicks in, since they’re treating you like an employee. 😉
Contractor should have a contract
I would think something like that would be covered in an employment contract. If you are working as an independent contractor – in charge of your own taxes, health care, etc — then I would think you would have, or at least want, an explicit contract with your employer.
And if they do want you in at certain times or be shown the door, you can ask them how they structure their 401(k) and when your health care kicks in, since they’re treating you like an employee. 😉
no useful info but I very much want an answer cuz my boyfriend was fired from a contract programming job due to this despite them being overjoyed with his work otherwise and there being no meeting or need for him to arrive at 9. He now has a job making significantly more where no one cares if he arrives at noon so long as work is done quickly and well.
no useful info but I very much want an answer cuz my boyfriend was fired from a contract programming job due to this despite them being overjoyed with his work otherwise and there being no meeting or need for him to arrive at 9. He now has a job making significantly more where no one cares if he arrives at noon so long as work is done quickly and well.
It’s what I do.
In fact – I do too much of it.
Alas – I do it in Canada. Otherwise I’d jump right in. However, the US and Canada are surprisingly similar on a lot of tax laws.
It’s what I do.
In fact – I do too much of it.
Alas – I do it in Canada. Otherwise I’d jump right in. However, the US and Canada are surprisingly similar on a lot of tax laws.
Hey- I recognize that nick. I used to read your LJ awhile ago – I always like to see what my US counterparts are up to. Bummer about your stalker, but hope you have a productive tax season since it’s just around the corner 😉 (and good answer!)
Do you have a contract? Does it stipulate a set schedule? Or that they may impose one under any particular circumstances?
Do you have a contract? Does it stipulate a set schedule? Or that they may impose one under any particular circumstances?
I’m with Joreth on this. I get paid as an independent contractor and get a 1099 but have to be at work at a specified time. In my case, it’s because although I really work for a casting company, the payments that fund my paychecks come from whatever production we’re working on at the time, so my boss is paying me, but she’s paying me with someone else’s money and it’s the way the system is set up.
I’m sure it all depends on what type of independent contractor you are.
That’s why I have to be in at a specified time – I work in entertainment and the show has to start on time. We can’t all just wander in when we feel like it. But it’s “contract” work in that I’m employed on a project-by-project basis.
According to one of the links I posted above, because I have multiple employers, I “advertise” publicly, and I am employed for individual projects, I fall under “independent contractor” whether they 1099 me or W2 me and whether I have a set starting time or not.
I have a hard time understanding how‘s employer justifies categorizing him as an independent contractor, so , you may just be SOL.
I’m with Joreth on this. I get paid as an independent contractor and get a 1099 but have to be at work at a specified time. In my case, it’s because although I really work for a casting company, the payments that fund my paychecks come from whatever production we’re working on at the time, so my boss is paying me, but she’s paying me with someone else’s money and it’s the way the system is set up.
I’m sure it all depends on what type of independent contractor you are.
I’ve actually quit tax. Now I’m the Business Manager for a tiny non-profit. A little less intellectually challenging, but I finally work for a company I believe in.
The stalker was my ex, but he finally got bored enough to quit following me around the internet, I think. It’s probably been at least two years since I last got any sort of message from him.
I had the same problem with my ex when I first came on LJ – but that was over 5 years ago and now I just like to post for my kids etc.
Too bad you quit tax – it’s all part of the fun, commiserating with other tax people but hopefully your job now is less stress 🙂
Know anyone who works as a contractor at microsoft? Have you asked them what tax forms they receive?
I know this is a little late. But my ex used to test xbox360 and he always got w2’s as a contractor.
Know anyone who works as a contractor at microsoft? Have you asked them what tax forms they receive?
I can’t tell what the issue is exactly here. It seems that you merely want flexibility in your hours and I’d just be requesting that directly regardless of your employment status.
The fact that you said “minority partner” suggests to me that you are working in a company that is a limited partnership of some kind, which further suggests to me that your status may be something other than “independent contractor” or “employee”.
I would ask to see the paperwork for the corporation (if it is some kind of limited partnership or limited liability partnership they have to have paperwork filed with the state) or an employment contract, and then review whatever paperwork you get with an attorney.
DISCLAIMER: I could be (and most likely am) wrong.
That’s actually the flashpoint of the issue, but not the issue itself. The issue is more wide reaching: for years, I’ve put up with a great deal of the normal kind of crap that goes with working for a tiny tech startup–irregular pay, taking pay in stock because the company has no cash that month, being paid as an independent contractor because the company can’t afford to pay FICA and so on, working nights and weekends to keep the company afloat, buying toilet paper because the company can’t afford it, that sort of thing.
That’s all fine with me, because I believe that the company may eventually succeed, and because there are benefits that go along with that sort of environment. One of the biggest of these is a certain flexibility that you don’t get at a big corporation. Nobody tells me what to wear, nobody filters the Internet connection or monitors my email, that sort of thing.
Unfortunately, what’s been happening lately is that a few of the majority partners have got it in their head that they want to have it both ways. They’ve decided they want to run the company as if it’s a big corporation. Rigid schedules, no personal time, business casual, that sort of thing. But they still want to run it like a tiny tech startup when it suits them–irregular pay, canceling the insurance benefits cause they can’t afford to pay, asking us to buy paper for the copy machine… Well, it doesn’t really work that way, y’know?
If they want to do it that way, least they can do is pay my damn FICA taxes. Being paid on 1099 cost me about seventeen hundred bucks over what I would have paid otherwise last year.
Grr.
I can’t tell what the issue is exactly here. It seems that you merely want flexibility in your hours and I’d just be requesting that directly regardless of your employment status.
The fact that you said “minority partner” suggests to me that you are working in a company that is a limited partnership of some kind, which further suggests to me that your status may be something other than “independent contractor” or “employee”.
I would ask to see the paperwork for the corporation (if it is some kind of limited partnership or limited liability partnership they have to have paperwork filed with the state) or an employment contract, and then review whatever paperwork you get with an attorney.
DISCLAIMER: I could be (and most likely am) wrong.
I’m a W-2 employee and I set my own hours, so long as I get to my meetings on time. When people start making noises about me being there 9-5 I ask them if I should dust off my resume. It usually stops the noises.
Don’t do that as a bluff, though…be ready to leave.
Personally, I think he should be ready to leave anyway, but that’s just me 🙂 The company has other issues besides starting times.
I’m a W-2 employee and I set my own hours, so long as I get to my meetings on time. When people start making noises about me being there 9-5 I ask them if I should dust off my resume. It usually stops the noises.
Don’t do that as a bluff, though…be ready to leave.
You’ve already had some pretty good input (and links) from other folks, so I’ll just add my two cents’ worth as an HR person.
When you’re trying to figure out Independent Contractor vs. Employee, the quick-n-dirty way to look at it is where does the company exercise control? If they’re controlling the outcome/work only, you’re probably talking about an Independent Contractor. If they’re controlling the worker, you’re probably talking about an Employee.
Control of the worker can come in various flavors. Who provides the materials and tools, for instance. Who provides training and instruction. Who sets up the process. Who decides when, where, and how the work is to be done. The more control a company exerts in these areas, the closer they’re getting to a common law employment relationship with the worker.
A couple of other things: Is the work you’re doing a key aspect of the business? Is this company the only company you’re working with? Or, perhaps more importantly, are you allowed to do this kind of work for anyone else? And finally, the fact that you’re a “minor partner” would certainly make me want to check a little further, as it seems to imply a closer relationship than an independent contractor.
It’s hard to say anything for sure, without knowing a few more details. But it seems like there’s enough smoke to warrant further investigation.
You’ve already had some pretty good input (and links) from other folks, so I’ll just add my two cents’ worth as an HR person.
When you’re trying to figure out Independent Contractor vs. Employee, the quick-n-dirty way to look at it is where does the company exercise control? If they’re controlling the outcome/work only, you’re probably talking about an Independent Contractor. If they’re controlling the worker, you’re probably talking about an Employee.
Control of the worker can come in various flavors. Who provides the materials and tools, for instance. Who provides training and instruction. Who sets up the process. Who decides when, where, and how the work is to be done. The more control a company exerts in these areas, the closer they’re getting to a common law employment relationship with the worker.
A couple of other things: Is the work you’re doing a key aspect of the business? Is this company the only company you’re working with? Or, perhaps more importantly, are you allowed to do this kind of work for anyone else? And finally, the fact that you’re a “minor partner” would certainly make me want to check a little further, as it seems to imply a closer relationship than an independent contractor.
It’s hard to say anything for sure, without knowing a few more details. But it seems like there’s enough smoke to warrant further investigation.
As far as the contractor verses employee thing, others have answered that. But that doesn’t really sound the whole picture. This is probably really about dealing and working with business partners, especially when you are on the minority side of things. This is an area that, unfortunately, I have way too much experience in.
I presume when you say “minority partner” that you own some percentage of stock in either a C or S corp, or shares of the LLC. Were you part of the original creation of the organization, or did they give you an ownership stake as a “stock incentive” sort of thing? Are you actively involved in the day to day operations or management of the business?
You say they owe you money? Is this money owed on invoices you have sent them, or an agreement for payment? I have been in the that situation in the past, too.
Knowing what the legal structure is would be important, if you need to get into pissing matches. You should have copies of your corporate bylaws or LLC operating agreement. You should be going to all legally convened meetings, or at the very least getting copies of the minutes to any of those meetings.
Depending on the legal framework, you will certain rights and responsibilities as a owner. You may find (as I did in one case) that you actually have more power than your think you do. In one case, certain business decisions required a unanimous vote by the members of the LLC, so even though I owned less than 10% of the company, they were not able to sell or merge without my consent, which I withheld until I got better terms. You can also raise holy hell if they are not following the proper conventions for meetings (notice in advance, quorum, votes, actions in writing, minutes, etc.) laid out in the company legal documents.
You can have “manager managed” LLCs, in which if you are named as a “manager” of the LLC, you are legally empowered to make any sort of decisions for the LLC, no matter what your level of economically beneficial ownership. Certain decisions would require either the other mangers or the full LLC membership to support, but otherwise, you can act like a CEO or President and do whatever you want.
But in any case, what it really all comes down to is that if you cannot have reasonable discussions with your partners about your role and your starting time and what the expectations are, then you working with the wrong people. When you have to start going to the paperwork to enforce things, it is too late, and from that point onward you are really fighting for the best exit possible, either for them or for you.
If they owe you money, and it seems likely that they are going to owe you for a long time, you should get that formalized as a promisssary note, with interest and a maturity date, even if there are no payments.
If you think the company has a future, and you don’t need the cash they owe you badly, you might consider trading in that note for additional equity in the company, or at least having that provision on the promissary note, spelled out at a predefined purchase price per share. You also want to go for a secured creditor position if possible, meaning you would have a much better chance of getting paid (on paper anyway) in the event that the company ceases operation.
I had one situation where one of my companies (one that I had a high percentage of ownership) was contracted and providing services [tech support call center] to another company (that I had a small level of ownership in). I cut the larger company a deal so they were paying far less than the market rate in terms of actual cash, but the full rate was being charged, and the unpaid amounts were added to what was essentially a resolving credit account, and they owed me. This lead, over time, to the larger company owning well over $75k, and was a very useful bargaining chip when the other business partners started becoming insane and making stupid decisions. Of course, the fact that I to resort to such strategies just sucked completely, and I wished I had never gotten into business what that particular set of business partners.
Ehrm. Well, good luck! I hope they are reasonable humans.
As far as the contractor verses employee thing, others have answered that. But that doesn’t really sound the whole picture. This is probably really about dealing and working with business partners, especially when you are on the minority side of things. This is an area that, unfortunately, I have way too much experience in.
I presume when you say “minority partner” that you own some percentage of stock in either a C or S corp, or shares of the LLC. Were you part of the original creation of the organization, or did they give you an ownership stake as a “stock incentive” sort of thing? Are you actively involved in the day to day operations or management of the business?
You say they owe you money? Is this money owed on invoices you have sent them, or an agreement for payment? I have been in the that situation in the past, too.
Knowing what the legal structure is would be important, if you need to get into pissing matches. You should have copies of your corporate bylaws or LLC operating agreement. You should be going to all legally convened meetings, or at the very least getting copies of the minutes to any of those meetings.
Depending on the legal framework, you will certain rights and responsibilities as a owner. You may find (as I did in one case) that you actually have more power than your think you do. In one case, certain business decisions required a unanimous vote by the members of the LLC, so even though I owned less than 10% of the company, they were not able to sell or merge without my consent, which I withheld until I got better terms. You can also raise holy hell if they are not following the proper conventions for meetings (notice in advance, quorum, votes, actions in writing, minutes, etc.) laid out in the company legal documents.
You can have “manager managed” LLCs, in which if you are named as a “manager” of the LLC, you are legally empowered to make any sort of decisions for the LLC, no matter what your level of economically beneficial ownership. Certain decisions would require either the other mangers or the full LLC membership to support, but otherwise, you can act like a CEO or President and do whatever you want.
But in any case, what it really all comes down to is that if you cannot have reasonable discussions with your partners about your role and your starting time and what the expectations are, then you working with the wrong people. When you have to start going to the paperwork to enforce things, it is too late, and from that point onward you are really fighting for the best exit possible, either for them or for you.
If they owe you money, and it seems likely that they are going to owe you for a long time, you should get that formalized as a promisssary note, with interest and a maturity date, even if there are no payments.
If you think the company has a future, and you don’t need the cash they owe you badly, you might consider trading in that note for additional equity in the company, or at least having that provision on the promissary note, spelled out at a predefined purchase price per share. You also want to go for a secured creditor position if possible, meaning you would have a much better chance of getting paid (on paper anyway) in the event that the company ceases operation.
I had one situation where one of my companies (one that I had a high percentage of ownership) was contracted and providing services [tech support call center] to another company (that I had a small level of ownership in). I cut the larger company a deal so they were paying far less than the market rate in terms of actual cash, but the full rate was being charged, and the unpaid amounts were added to what was essentially a resolving credit account, and they owed me. This lead, over time, to the larger company owning well over $75k, and was a very useful bargaining chip when the other business partners started becoming insane and making stupid decisions. Of course, the fact that I to resort to such strategies just sucked completely, and I wished I had never gotten into business what that particular set of business partners.
Ehrm. Well, good luck! I hope they are reasonable humans.
1099
my understanding is the 1099 is for taxation purposes, I worked in a door to door sales position once payed as a ‘contractor” however I was to be in the office at 9 and work till I was done. Kind of a tricky thing, being self employed and having to follow company schedules, In my opinion think the co you contract with has a right to set a schedule, but then I am not an accountant either
1099
my understanding is the 1099 is for taxation purposes, I worked in a door to door sales position once payed as a ‘contractor” however I was to be in the office at 9 and work till I was done. Kind of a tricky thing, being self employed and having to follow company schedules, In my opinion think the co you contract with has a right to set a schedule, but then I am not an accountant either
That’s why I have to be in at a specified time – I work in entertainment and the show has to start on time. We can’t all just wander in when we feel like it. But it’s “contract” work in that I’m employed on a project-by-project basis.
According to one of the links I posted above, because I have multiple employers, I “advertise” publicly, and I am employed for individual projects, I fall under “independent contractor” whether they 1099 me or W2 me and whether I have a set starting time or not.
I have a hard time understanding how‘s employer justifies categorizing him as an independent contractor, so , you may just be SOL.
Personally, I think he should be ready to leave anyway, but that’s just me 🙂 The company has other issues besides starting times.
From looking at the links other folks have left, it seems pretty cut and dried that I’m an employee for tax purposes. They take up all my time, provide the tools and office space, and control both the means and manner of my job performance, and so on.
Which means when they paid me on a 1099, I took a tax hit I shouldn’t have.
Reckon it’s time to have a conversation with them about that.
That’s actually the flashpoint of the issue, but not the issue itself. The issue is more wide reaching: for years, I’ve put up with a great deal of the normal kind of crap that goes with working for a tiny tech startup–irregular pay, taking pay in stock because the company has no cash that month, being paid as an independent contractor because the company can’t afford to pay FICA and so on, working nights and weekends to keep the company afloat, buying toilet paper because the company can’t afford it, that sort of thing.
That’s all fine with me, because I believe that the company may eventually succeed, and because there are benefits that go along with that sort of environment. One of the biggest of these is a certain flexibility that you don’t get at a big corporation. Nobody tells me what to wear, nobody filters the Internet connection or monitors my email, that sort of thing.
Unfortunately, what’s been happening lately is that a few of the majority partners have got it in their head that they want to have it both ways. They’ve decided they want to run the company as if it’s a big corporation. Rigid schedules, no personal time, business casual, that sort of thing. But they still want to run it like a tiny tech startup when it suits them–irregular pay, canceling the insurance benefits cause they can’t afford to pay, asking us to buy paper for the copy machine… Well, it doesn’t really work that way, y’know?
If they want to do it that way, least they can do is pay my damn FICA taxes. Being paid on 1099 cost me about seventeen hundred bucks over what I would have paid otherwise last year.
Grr.
I still do a few returns every year as a hobby, but I don’t miss tax season at all. My new job is stressful in different ways, which is a nice change for now.
I know this is a little late. But my ex used to test xbox360 and he always got w2’s as a contractor.