Is this illegal or not?

[aiglesias150]

First off, I do not own a business. I do not know very much about small businesses and how they run. This is why I came to this forum. Hopefully there is someone here who could help me. Here is my question:
A person that I know has a small masonry business. He has a business license. He has about 4 employees. He doesn't have them fill out all the paper work you would fill out if you got a job like at McDonalds for example. The employees don't fill out W2s. When he pays them, he writes them checks but they are personal checks, not "company checks". He also works with this employees. He doesn't say "Be at this place tomorrow at this time", they all go together and work together. When tax time comes around his employees barely get a refund or they end up owing. Is this legal what the owner is doing? Also, with the new healthcare law, is he breaking some type of law(s) by doing this? Who would I report this to?

[nealrm]

He is treating them as independent contractors. If they are truly ICs depends on more than what you told us. The IRS does post guidelines the determine if someone is an employee or an IC. In general it depends on if the person has say in when and who they work, if they can sell their service to others, if there is a potential for both profit and loss and several other factors.

This appears to be a ABC issue. "A" is your friend, "B" are the employees and you need to "C" your way out of it.

[aiglesias150]

The thing is my friend's "boss" gets his jobs from a guy who has a bigger construction company. He passes the masonry work to my friends boss. My friends boss hired him and like 5 other people to help him complete the jobs that this bigger company gives him. When my friend done his taxes in January the tax person said my friends boss was doing it because paying them this way is cheaper. Is there anything my friend can do besides quit? He tried talking his boss and the boss said he would stop paying them like that but he hasn't.

[Freelancier]

He is not breaking anything in regard to ACA, that only applies to shops with more than 50 people.

He might be breaking IRS rules about who is an employee and who is an independent contractor. Only way to find out is for one of the "employees" to tell the IRS about it and have them investigate. He appears to be paying them under the table and forgoing the deduction in exchange for not paying the corporate end of their taxes. If the IRS later decides they were employees, he's going to end up paying a lot of money.

[tallen]

There may also be issues with the state's Worker Compensation Board, as it seems unlikely the guy is carrying workers comp insurance for these "employees."

[MyITGuy]

This website should help - Independent Contractor (Self-Employed) or Employee? (http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-(Self-Employed)-or-Employee)

If all else fails, have the friend fill out/submit this form - http://www.irs.gov/file_source/pub/irs-pdf/fss8.pdf

[Business Attorney]

There may also be issues with state withholding taxes and unemployment compensation taxes for the employer.

The IRS article MyITGuy linked to is very good and comprehensive. I have a somewhat more condensed article on my own website at Articles on Business Law :: Illinois Business Attorney (http://www.illinoisbusinessattorney.com/articles.html)