glenneena
11-27-2011, 10:40 AM
During the past 25 years times have changed. I have been approached by many employees, part time people and people that desire to work as contractors or consultants, etc. They are attempting to avoid payroll and on the book taxes of course.
I have discussed it with my CPA and as well my Attorney. The bottom line is either one must meet the criteria of the IRS which would be something along the lines of the following:
You cannot set their hours (although you can set a time line or dead line, etc.)
You cannot set their pay (although you can nego or bargain of course)
The other party must have a Fed Tax number and a business license if required
The other party must provide their own tools of the trade
Permenant Vs. Temp. If the relationship is intended to be permenant than most likely it will be viewd illegal
Day to Day handling of work. The contractor relationship is not intended to handle the key aspect of the company's work on a
day to day basis.
There is no control over a Contractors performance.
There is no training of a Contractor.
There might be more requirements, but I was advised if the people meet those, I am pretty much good to go. I was also told if I hire someone to do something and they cannot produce a viable legit invoice with their Tax number and company info imprinted, I am to 1099 them for any amount paid.
There were numerous people in my field, towing/wrecker/garage that did get jammed up with the IRS for failure to withhold 941's when they declared their employees as 'Contractors' and 'Leased Employees'. Which stemmed from the company buying trucks, truning around and leasing them to the employee, and the employee would be responsible for gas and repairs, etc., the same as a taxi cab company. However, the IRS came in and declared and won criminal convictions and civil cases against many because the company still dictated the hours, the job prices, etc. To be legit, it was our understanding that the employee who turned 'Contractor' by leasing a truck would have also been required to start his own company, i.e.; Business License, Tax Number, etc., and be completely independent without being controlled by the company that leased him the truck. The person could have still worked soley for the company that leased him the truck without having other clients, but the person would have to pay his own business taxes and be free to come and go without a schedule and not be dictated prices (which could be gotten around of course) and have all his own tools of the trade. And one of the most important checks is if the company is controlling the person/contractor in many ways.
So the bottom line is, if you sit there as a company owner and tell your contractor what to do, how to do it and manage how he is doing it, he is not a contractor.
I have discussed it with my CPA and as well my Attorney. The bottom line is either one must meet the criteria of the IRS which would be something along the lines of the following:
You cannot set their hours (although you can set a time line or dead line, etc.)
You cannot set their pay (although you can nego or bargain of course)
The other party must have a Fed Tax number and a business license if required
The other party must provide their own tools of the trade
Permenant Vs. Temp. If the relationship is intended to be permenant than most likely it will be viewd illegal
Day to Day handling of work. The contractor relationship is not intended to handle the key aspect of the company's work on a
day to day basis.
There is no control over a Contractors performance.
There is no training of a Contractor.
There might be more requirements, but I was advised if the people meet those, I am pretty much good to go. I was also told if I hire someone to do something and they cannot produce a viable legit invoice with their Tax number and company info imprinted, I am to 1099 them for any amount paid.
There were numerous people in my field, towing/wrecker/garage that did get jammed up with the IRS for failure to withhold 941's when they declared their employees as 'Contractors' and 'Leased Employees'. Which stemmed from the company buying trucks, truning around and leasing them to the employee, and the employee would be responsible for gas and repairs, etc., the same as a taxi cab company. However, the IRS came in and declared and won criminal convictions and civil cases against many because the company still dictated the hours, the job prices, etc. To be legit, it was our understanding that the employee who turned 'Contractor' by leasing a truck would have also been required to start his own company, i.e.; Business License, Tax Number, etc., and be completely independent without being controlled by the company that leased him the truck. The person could have still worked soley for the company that leased him the truck without having other clients, but the person would have to pay his own business taxes and be free to come and go without a schedule and not be dictated prices (which could be gotten around of course) and have all his own tools of the trade. And one of the most important checks is if the company is controlling the person/contractor in many ways.
So the bottom line is, if you sit there as a company owner and tell your contractor what to do, how to do it and manage how he is doing it, he is not a contractor.