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Question about defining an employee as a "independent contractor"
Posted on 1/9/18 at 11:23 am
Posted on 1/9/18 at 11:23 am
I have a niece who's husband has been working for a metal fabrication contractor for ten years. Not working for anyone else. He signed a work agreement that stipulates he can't do side work or work for any other fabricator. He is provided with a company truck, tools and is required to work at their direction.
He has been 1099'd the entirety of his employment, paying full self-employment taxes. The office staff all are treated as employees and have employer matching 401k, health insurance and the company pays their required taxes.
It seems to me that this is not meeting the definition of "independent contractor" and that this fabricator is skirting the law. My question is, does her husband (and I guess herself) have a cause for action to recover the employer's share, plus interest, plus lost 401k matching and if so, should they turn them in to the IRS to handle or just turn them in AND file suit? In fact, with 20+ other fabricators working there, would a class-action seems likely to be the best recourse?
He has been 1099'd the entirety of his employment, paying full self-employment taxes. The office staff all are treated as employees and have employer matching 401k, health insurance and the company pays their required taxes.
It seems to me that this is not meeting the definition of "independent contractor" and that this fabricator is skirting the law. My question is, does her husband (and I guess herself) have a cause for action to recover the employer's share, plus interest, plus lost 401k matching and if so, should they turn them in to the IRS to handle or just turn them in AND file suit? In fact, with 20+ other fabricators working there, would a class-action seems likely to be the best recourse?
8
Posted on 1/9/18 at 11:47 am to HubbaBubba
Are you sure they are truly independent contractor and not working for a third party contractor? I know a lot of plants have a lot of people as "contractors" but they are still given a W-2 and benefits.. it's just that the W-2 and benefits are from the contracting company, not the company who owns the worksite.
It's odd to me that the company would treat all of it's office staff as employee but none of the factory/field workers.
It's odd to me that the company would treat all of it's office staff as employee but none of the factory/field workers.
Posted on 1/9/18 at 11:49 am to HubbaBubba
IMO, he is owed reimbursement of the employer's share of payroll taxes that he's had to pay all of the years he filed as a 1099 individual.
He's an employee. He's not a contractor.
He needs to decide if it's worth maybe losing his job over plus the cost of lawyering up (although he'd likely be able to get his lawyer's fees paid by the company if he sues or settles.)
He's an employee. He's not a contractor.
He needs to decide if it's worth maybe losing his job over plus the cost of lawyering up (although he'd likely be able to get his lawyer's fees paid by the company if he sues or settles.)
Posted on 1/9/18 at 12:35 pm to HubbaBubba
"He signed a work agreement"
what does this agreement say about it
what does this agreement say about it
Posted on 1/9/18 at 12:46 pm to HubbaBubba
yeah I would say that his company is screwing him
Here is the guide put out by the state
LINK
you cant tell someone that they cant work for anyone else and then say they are 1099.
Here is the guide put out by the state
LINK
you cant tell someone that they cant work for anyone else and then say they are 1099.
Posted on 1/9/18 at 2:35 pm to HubbaBubba
irs.gov
quote:
Common Law Rules
Facts that provide evidence of the degree of control and independence fall into three categories:
Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.
The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.
quote:
Form SS-8
If, after reviewing the three categories of evidence, it is still unclear whether a worker is an employee or an independent contractor, Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF) can be filed with the IRS. The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status.
Posted on 1/9/18 at 4:14 pm to LSURussian
quote:
IMO, he is owed reimbursement of the employer's share of payroll taxes that he's had to pay all of the years he filed as a 1099 individual.
He's an employee. He's not a contractor.
He needs to decide if it's worth maybe losing his job over plus the cost of lawyering up (although he'd likely be able to get his lawyer's fees paid by the company if he sues or settles.)
This.
Posted on 1/10/18 at 9:03 am to LSUFanHouston
quote:Yes, we spoke extensively about this yesterday. Also, he left about a month ago, so no risk of losing his current job.
Are you sure they are truly independent contractor and not working for a third party contractor?
Posted on 1/10/18 at 9:07 am to Jerrysworld
quote:That, of course, is not known by me, but regardless of the text of the agreement, on the surface, it sounds like he was being screwed over. My thoughts are, a written agreement circumventing the tax laws doesn't absolve the business of their responsibility.
"He signed a work agreement"
what does this agreement say about it
Posted on 1/10/18 at 9:21 am to HubbaBubba
quote:
employer's share, plus interest, plus lost 401k matching and if so, should they turn them in to the IRS to handle or just turn them in AND file suit?
I agree that legally and in the eyes of the IRS he is likely an employee. But if your relative wanted all that stuff, why did he to agree to work for all those years without it, in writing no less? Also why would the IRS care? They got their money.
Posted on 1/10/18 at 9:21 am to HubbaBubba
quote:
a written agreement circumventing the tax laws doesn't absolve the business of their responsibility.
It doesn't with the IRS. He should sue the company. He could also be a whistleblower and report them directly to the IRS.
This kind of stuff really pisses me off. It's straight taking advantage of the ignorance(not meant in a derogatory way) of people. They knew they were in the wrong, hence their written agreement with him and I'm assuming other employees.
Posted on 1/10/18 at 9:48 am to The Spleen
It certainly sounds like he was an employee, if he left he should talk a to a lawyer.
Given that, what was his pay? Plenty of 'contractors' make way more then they would hourly in order to make up for their taxes and loss of benefits, etc. I mean if he would have been making $x/hour as an employee and they paid him the same as a contractor then yes he should be upset. But if they paid him double or something as a contractor then what's he upset about? There's some contractors that make 4-5+ what similar 'employees' make, so the idea that just because he was a contractor he was not being reimbursed properly is simply not always the case.
Lastly, no one made him stay there. I mean what was his contractor pay compared to going elsewhere?
Given that, what was his pay? Plenty of 'contractors' make way more then they would hourly in order to make up for their taxes and loss of benefits, etc. I mean if he would have been making $x/hour as an employee and they paid him the same as a contractor then yes he should be upset. But if they paid him double or something as a contractor then what's he upset about? There's some contractors that make 4-5+ what similar 'employees' make, so the idea that just because he was a contractor he was not being reimbursed properly is simply not always the case.
Lastly, no one made him stay there. I mean what was his contractor pay compared to going elsewhere?
This post was edited on 1/10/18 at 9:49 am
Posted on 1/10/18 at 9:52 am to baldona
quote:You make a lot of assumptions.
baldona
Posted on 1/10/18 at 9:53 am to The Spleen
quote:
This kind of stuff really pisses me off. It's straight taking advantage of the ignorance(not meant in a derogatory way) of people. They knew they were in the wrong, hence their written agreement with him and I'm assuming other employees.
Eh, it's not that easy. Just because you are a contractor doesn't mean you are compensated less simply differently. You are saying all people that are underpaid are being taken advantage of, but being underpaid is on the employee too. Your pay is what you as the worker agree to do, if you don't like it go elsewhere.
I know of a government food service contractor that pays most of their employees an hourly wage of $10.50-14 an hour plus they have a benefits package that is $3.29 an hour. They are allowed to choose if they want the benefit package or the extra pay, one year not a single employee chose the benefit package.
Posted on 1/10/18 at 9:56 am to HubbaBubba
quote:
You make a lot of assumptions.
You left out a ton of details, but clearly you think the employer was in the wrong and you and your BIL are upset about it. So why did he work there so long?
Why did you leave out the details on pay? Without all the details, how can I make anything but assumptions?
Certainly, if he was paid the same hourly rate as a contractor while working technically as an employee then he has a legal issue. But if he was making more as a contractor, his case is not as cut and dry.
Posted on 1/10/18 at 9:59 am to baldona
The pay he was getting does not in any way absolve the company from knowingly breaking the law.
Posted on 1/10/18 at 10:06 am to The Spleen
quote:
The pay he was getting does not in any way absolve the company from knowingly breaking the law.
I don't really disagree, but thats between the company and the IRS. I'm simply saying that just because you are a contractor does not mean you are compensated less for your work, simply differently. Some contractors make less then employees and some make more.
If he wants to turn them into the IRS for likely operating illegally I have no issues. I'm simply saying, I'm not sure how it works if he was paid much more as a contractor then an employee if he would be legally due any money?
Posted on 1/10/18 at 10:14 am to baldona
quote:
I'm not sure how it works if he was paid much more as a contractor then an employee if he would be legally due any money?
The IRS regulations are pretty cut and dry in these scenarios. The company paying a contractor more than they would an employee isn't even a factor. If they find the company paid a contractor, but they deem that contractor to actually be an employee, the employee is due all of the self employment taxes he/she paid during the time they deem him/her to be an employee. The company is also hit with pretty substantial penalties.
Now, an attorney could possibly get a bigger settlement for things like retirement matching he missed out on, health insurance premiums he paid out of pocket for, liability insurance he may have been required to obtain, etc.
Posted on 1/10/18 at 10:21 am to The Spleen
quote:
The IRS regulations are pretty cut and dry in these scenarios.
Are you a lawyer that has handled cases like these? I'm not so I don't know, but I've dealt with the IRS to know that there is plenty that is not cut and dry with them and that a good lawyer for the company may be able to work some magic too.
I agree it sounds like the company operated illegally under the IRS guidelines. We don't know all the details either.
The big thing to me is the inability to work for anyone else and the use of a company vehicle. My understanding is that contractors provide all their own equipment.
All I was trying to say is the whole idea that working as a contractor is a worse financial situation then working as an employee, is outright false. I hear it all the time though.
Posted on 1/10/18 at 10:29 am to baldona
No, I'm a CPA that used to work in the tax field. I've been out of practice for several years now, but when I was in practice the IRS took these cases pretty seriously. It was a point of focus for them for a few years. Not sure if it still is.
It always came down to control. If the company could dictate when, where, how many hours, etc. you worked, you were an employee. Most other fact patterns were disregarded. The fact that they bought this guy a truck and provided the tools makes their case even worse.
It always came down to control. If the company could dictate when, where, how many hours, etc. you worked, you were an employee. Most other fact patterns were disregarded. The fact that they bought this guy a truck and provided the tools makes their case even worse.
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