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View Full Version : Am I an employee or independent contractor?



bassman6530
07-28-2011, 11:11 AM
Hi everyone! I'm young and fear I'm being taken advantage of. I'll explain my situation as best as I can.

I do product photography for an online business.

I have a 'boss' who tells me generally what to do
I only work for them.
I use their equipment.
I'm expected to do the work at their place of business.
I'm expected to work their every day of the week, for a certain number of hours
I'm allowed to do additional work from home with permission, my boss tells me what to do
I'm payed by the hour


Currently, I'm being payed as an independent contractor. What would you classify me as?

I feel that they may be doing this to avoid paying employee taxes while still effectively 'controlling' and underpaying me. Correct me if I'm wrong, but since I have nothing to deduct, I don't benefit at all from this situation and will end up owing more taxes.

Any help would be much appreciated! My friends and family know very little about accounting, finances, taxes, etc. and I want to take some sort of action before its too late.

phanio
07-28-2011, 12:03 PM
You are an employee: IRS's Website: Independent Contractor (Self-Employed) or Employee? (http://www.irs.gov/businesses/small/article/0,,id=99921,00.html)

Mary
07-28-2011, 12:16 PM
If you're 1099'd you're a contractor but if you file a profit and loss statement at the end of the year and take your pay as revenue you would be surprised at what you are actually able to expense.

Employers don't like taking on employees on a W2 basis because it makes them liable and responsible for a lot of stuff like if they let the employee go and they file unemployment, or if they do something that will risk the business of getting sued, health insurance is super expensive etc., etc.,

nealrm
07-28-2011, 02:26 PM
You are an employee and yes they are taking advantage of you. What they are doing sound illegal. They are basically saving themselves from paying for unemployment insurance, and the business share of social security and medicare.

I expect if you confront them, they will stop using your "services" so be prepared.

bassman6530
07-28-2011, 02:59 PM
Thanks for everyone's help! I'm still young, and plan on transitioning from this job to another before the end of this fiscal year, so the lack of employee benefits doesn't bother me as much as the higher taxes.

Through my research, I learned that its up to the IRS to determine what I'm classified as. My current plan is to send in an SS-8 before filing my taxes (and after I leave this job), have the IRS declare me an employee, and save myself from SE taxes. Does this sound advisable?

GreaterVisibility
07-28-2011, 09:47 PM
If you're 1099'd you're a contractor but if you file a profit and loss statement at the end of the year and take your pay as revenue you would be surprised at what you are actually able to expense.

Employers don't like taking on employees on a W2 basis because it makes them liable and responsible for a lot of stuff like if they let the employee go and they file unemployment, or if they do something that will risk the business of getting sued, health insurance is super expensive etc., etc.,

If you're 1099'd, that only means that the employer is claiming you to be an independent contractor. It doesn't mean that you legally are one, and this young man is not legally an independent contractor per IRS guidelines. Employers do not just get to decide if you're an IC or not, they are supposed to follow the laws and guidelines that are really pretty clear on the IRS website.

Failure to classify an employee as such, and labeling them an IC just to skirt having to pay out for employer taxes, worker's comp, unemployment insurance, etc. can be devastating to that employer when they get caught down the road. They can have to pay tons of back taxes, including interest and penalties. I spoke with a gentleman recently whose father had done this, and the IRS waited for him to get his business going really well, and then they swooped in and took everything from him. In the end, it was his fault, all caused because he didn't want to fool with some paperwork and a little extra expense. It cost him everything.

Business Attorney
07-28-2011, 10:02 PM
From your description it sounds like you are an employee, but of course we are only hearing your characterization. I learned a long time ago that the same story can sound quite different depending on who is telling it. I have a discussion of the independent contractor vs. employee (http://www.illinoisbusinessattorney.com/articles/independent_contractor_vs_employee.html) issue on my website. It just says what the IRS site says, but organized a little differently to hopefully be clearer.

As for avoiding SE taxes, you will save the employer share of the employment taxes. According to IRS Circular E "The employee remains liable for the employee share of social security and Medicare taxes."

Steve B
07-29-2011, 05:47 PM
Greater Visability hit it right on the head, the employer doesn't get to decide. Of course, David is also correct. It sounds like you've done your research already before making the post - so I'd want to hear the other side. But, based strictly on what you are telling us, it's an easy call. You are an employee.

Dan Furman
07-30-2011, 12:40 AM
You are 100% spot on.

Independent contractors work for themselves. That means if you are independent contractor, you call the shots. You dictate hours, timeframes, and even pay rates. The employer, of course, does not have to use your services if they do not agree to your terms. They can hire a different contractor. It's really no different than your boss hiring a plumber - the plumber tells the hiring person when, where, and how much.

The minute the employer sets hours, pay rates, etc etc, you become an employee, no matter what the employer had you sign. Your employer can actually get into a substantial amount of trouble here. You likely have some leverage, should you wish to use it.

Evan
08-03-2011, 08:57 PM
As hinted above, control is really the biggest aspect when it comes to determining whether someone is an independent contractor or an employee. Granted if you're an IC, that doesn't mean you can just show up whenever -- as many business relationships require that you be there during certain hours. Many would also pay you by the hour (with a rate mutually agreed upon by both parties), or perhaps even by the project. The fact that this photography place is the *only* one in which you work also does not mean you're an employee either, but cumulatively what you've said is persuasive.

Generally filing the SS-8 at the end of the road before tax season may not be the best approach, though I'm not offering any opinion on this. Perhaps they're paying you more an a contractor than they would as an employee, which is supposed to offset the additional taxes -- certainly none of us know that. But there are also costs that you can write off to reduce any self-employment tax burden you do have from this job, notably any ordinary and necessary business expenses. If you were an employee and incurred some of these costs but were unreimbursed, it's likely none of them would have been deductible at all. So there are pro's and con's. I'd consider your overall experience there and whether the relationships developed you think are meaningful. By filing this request, you could potentially damage that relationship which could also affect you professionally. So make sure your not ruining anything over a few hundred dollars (potentially) which perhaps they are offsetting based on your current pay.

Best of luck with your decision.