"Independent Contractor" or employee? Is this the latest scamming of workers?

[IDemo]

I've just found a job at a very small tech startup. Think HP's Dave and Bill's garage, only it's not even the entire garage, just a small side room. I apparently went in ignorant of the terms - it seems the boss thinks of me as a "1099", or Independent Contractor. That means I would essentially be in business for myself, receive no benefits, no paid vacation, and have to pay my own SS/Medicare tax. And no unemployment if the job were ended for any reason. This is going to take a significant bite out of what was a somewhat lower paycheck already.

The IRS has some fairly strict rules about who qualifies as a 1099 employee and who should be a 'W2' employee. The basic rule is - if your employer tells you what to do and how to do it, you're an employee, not a contractor. There are other factors, but the general rule is "if it looks like a duck (an employee) it's a duck. But, no surprise, employers have taken to saving themselves money by increasingly going with the 1099 option, even if it's highly questionable whether justified. There are penalties for those the IRS deems to have misclassified workers; fines and back taxes. But it seems that the need for work may keep many from advertising the facts to the IRS in favor of just having a job.

I had no nibbles on the numerous resumes that I sent out over the past couple of months, but I'm not sure this one is going to work out. Needless to say, I'm a bit steamed, at myself for not paying attention and at the owner for what looks to me like a blatant misuse of the independent contractor classification.

Just feeling the need to vent a bit I guess, but open to suggestions or wisdom on the subject.

[MADem]

1. I think you're getting quacked. Basically, if you believe you're being hosed you probably are. nt

[Thinkingabout]

2. You are correct in if you are told what to do and under the supervision of your employer then the

employer is supposed to pay FICA and Medicare taxes, file 941 along with deposits monthly. The employer is supposed to file SUTA and FUTA which is on $9000 and $7000 of salary in a year. This is cheating, and when you get to the point in your life in which you want to start your SS the formula is on 35 years whether you have 35 years of earnings or not. If you work more than 35 years the highest 35 years is what they figure your amount. There will probably be fines to the employer, better to be legal.

[ohheckyeah]

3. I reported a work at home company

for violating the IRS rules for 1099 Independent Contractors. I don't know if they paid a fine but they did change some of their requirements.

KGB, another online company, got sued and slapped with huge fines. It had to pay back pay to a lot of ICs.

It's a scam in many cases and the IRS was supposedly cracking down according to this article:

http://blogs.findlaw.com/free_enterprise/2013/07/irs-cracking-down-on-independent-contractors.html


My suggestion - if you don't take the job or quit the job, report the company to the IRS.

[BuelahWitch]

10. Was that Arise?

They're horrible! Make people pay hundreds of dollars for "training classes" and then don't give them a job!

[ohheckyeah]

12. No...

I've never heard of Arise. I would never pay to get a job.

[2naSalit]

4. Perhaps

a visit to the labor board and the tax authority would be in order. Tell them you aren't sure about this issue and ask them to help you sort it out. That would help you figure out what the actually legal status of your position is and give them a heads up about this employer who seems to be making an attempt to throw the burden of the payroll office on you. Maybe they are not legit.

[Journeyman]

5. Well, you were looking for a job when you found this one, so you're a little better off. . .

Another aspect of the "it's a job if they tell you what to do and how to do it," is that the company you are doing contract work for cannot tell you the hours of when the job is to be done. My understanding, they can give you deadlines but not how you must meet them. If this new situation gives you any latitude at all, use your free time to look for other employment while you're making at least a little money.

Once, when a company screwed me over but good, I went out for Chinese for lunch that afternoon. My fortune cookie said: "Put up with small annoyances to gain great results." Some of the best business advice I ever received. I parlayed my diminished situation into an opportunity to build my own business and haven't looked back in over 20 years.

[JVS]

6. I saw a lot of this 10 years ago.

I even had a former coworker who I spotted working in Walmart one day. It was the middle of the night and not busy so we asked each other how things were going. She was thrilled to be working there because even though the pay was low, the hours were regular and the pay dependable.

What are your responsibilities?

[7wo7rees]

7. Been happening for years.

Absolutely nothing new.

[tinrobot]

8. It is certainly not a new tactic.

Companies do it all the time. Since this one is a startup, they may be too timid to commit to "full-time" employees until the business is on solid ground. Or they could just be cheapskates.

If they were smart, they'd hire you through a temp agency or loan-out company that would give you the W-2. It's the easiest way for a new business to skirt the responsibilities of having employees.

[nilram]

9. No, not new, but I agree with #4

Give your most innocent look to the local labor boards and tax authorities and ask how this should really be treated under the law. Keep detailed records about what you're asked to do and how independently you work. And, if not the local government authorities, an employment lawyer could help you sort things out -- after all is said and done, the employer is promising you a particular hourly wage and maybe that employer should be responsible for their share of social security tax, not you.

[aggiesal]

11. I'm no expert, so take my advice with a grain od salt ...

Document everything.
Keep a record of your hours, time of day started, time of day ended for
everyday you work.
Document your assignments, what you worked on and how you worked
on that assignment.

Then when you leave the company, sue the crap out of the owner for
payroll taxes not paid.

One last note, as a 1099, keep account of all your expenses and mileage
as it pertains to this position. You might be able to deduct a lot of your
expenses from your personal taxes.

Just a suggestion.

[TorchTheWitch]

13. this crap has been going on for decades

Happened to me twice with two different law firms back in the early 90's and has been my fate for the last 10 years. Off the books jobs have been going on since as far back as I can remember in a lot of fields.

[greymattermom]

14. common in the Atlanta area

most of the jobs my daughter has had are either 1099 or W2. None have had any benefits, no insurance, sick leave, vacation, etc. They call her a freelancer, but tell her when to come to work and supervise her very closely when she's there. There is a huge turnover, but they seem willing to put up with it as so many will work this way. Some of these are big companies, for example Rubbermaid. But, as the economy slowly picks up, there will come a time when skilled people won't accept these jobs. I hope that will be soon.

[TorchTheWitch]

15. Do this:

If you need the job do it until you find another one. Once you leave there get this form:

http://www.irs.gov/pub/irs-pdf/fss8.pdf

Fill it out and mail it back. Soon you'll get a determination of whether or not you are an employee or an independent contractor based on the information you gave.

If they find that you were an employee being treated like an independent contractor they'll notify you, fine the company and make them pay whatever employee taxes they would have owed had they treated you as an employee.

If you do this while you work for them they'll fire you - guaranteed. So if you need the job, work for them while you find a replacement job and then do the form after you leave. I had to do this twice in the past. In nearly all cases workers are determined to be employees.

I can pretty much guarantee that this place hired you to work for them as an employee and are just trying to rip off both you and the government.

[Recursion]

16. There are right and wrong ways to do it, and there's a lot of it in tech

(with the caveat that I'm not a lawyer)

I've had some very good 1099 situations where the start-up wanted me to write some software for them. I'd come in for meetings when I needed to, but otherwise I didn't have any "hours" or anything; I just did my work where I wanted and when I wanted (as long as I met the deadlines). That's what 1099 is for.

I've had other clients try to say "come in at 9 o'clock and you'll sit at this desk"; I've usually explained that if I'm not a W-2 he shouldn't be giving me a desk or setting hours. They've either gotten pissed and found another guy or not tried to assign me hours.

[pnwmom]

17. My advice, based on something a relative did. Keep careful records.

If they let you go, file a formal complaint with the appropriate state agency.

My relative was able to prove that she had worked there long enough to have been paid as a full time permanent employee, and was able to get a financial settlement.

[IDemo]

18. Thanks all

I will keep careful records of my activities and expenses as suggested by several here.

[Munificence]

19. 1099

Yes, 1099 is designed really as if you were a freelancer. You pretty much work when you want, are not told exactly what to do.

What 1099 says to me:

If as a W2 employee I was accustomed to say $25/hr then as a 1099 I'd ask for $37-$40 hr as I'd be paying most of the taxes, social security, unemployment, healthcare, yada, yada, yada and the nearly 50% increase over typical would cover these. I think being a 1099 employee at some point is great from a learning perspective for people....they realize how much an employee really costs as they have to pay all the taxes and benefits out of their check.

Most of the 1099 folks I know never pay their taxes and cheat the system.