employer trying to label me as independent contractor


C

c b

Hi all,

Started a new job 3 weeks ago after signing nothing. Professional
capacity (obviously not CPA), paid with a company check - no
withholdings. Asked, was told IK.

This is my first time being hired in a professional capacity - just
got my licenses. Replied to job posting offering "xyz salary, non
negotiable - no experience necessary, we will train" and interviewed,
was offered, accepted. Lots of on-the-job training. All company
supplies, computers, etc.; I didn't provide anything. Was told when
to report in to work but not when to leave, some files require
attention until 4pm, others until 10pm, and in the end I average about
55 hours a week.

I feel very much like I am being screwed, that I am an employee based
on the factors on the IRS website regarding emp vs IK, and that the
high turnover at this company is due to shenanigans like this.

I don't want to have to leave, I don't have enough experience to go
any place else. I don't think I can say "hey, I am actually an
employee, start paying my employment taxes!" and I really don't know
how I can afford to live on this salary considering it's pre-tax
instead of after-tax like at every other job. FML.

Any thoughts / guidance / advice / help, please?
 
Ad

Advertisements

S

Stuart A. Bronstein

c b said:
Started a new job 3 weeks ago after signing nothing.
Professional capacity (obviously not CPA), paid with a company
check - no withholdings. Asked, was told IK.

This is my first time being hired in a professional capacity -
just got my licenses. Replied to job posting offering "xyz
salary, non negotiable - no experience necessary, we will train"
and interviewed, was offered, accepted. Lots of on-the-job
training. All company supplies, computers, etc.; I didn't
provide anything. Was told when to report in to work but not
when to leave, some files require attention until 4pm, others
until 10pm, and in the end I average about 55 hours a week.

I feel very much like I am being screwed, that I am an employee
based on the factors on the IRS website regarding emp vs IK, and
that the high turnover at this company is due to shenanigans
like this.

I don't want to have to leave, I don't have enough experience to
go any place else. I don't think I can say "hey, I am actually
an employee, start paying my employment taxes!" and I really
don't know how I can afford to live on this salary considering
it's pre-tax instead of after-tax like at every other job. FML.

Any thoughts / guidance / advice / help, please?
From a practical standpoint, your best bet is to stay as long as
you feel you need to, and don't rock the boat. Keep track of all
your expenses and file a Schedule C in the mean time. And keep
track of all the hours you work.

Then plan to leave as soon as you reasonably can, whether it's a
year or two or more.

After you leave, file form SS-8 with the IRS, to have them
determine you were an employee. At the same time take the company
to the state labor commission or sue in court to get paid back for
the company's portion of taxes you paid and any hours you should
have been paid for but weren't.

If you start causing trouble now, they would likely fire you. You
could sue, but it would be a much more difficult case than sueing
for back wages due to misclassification.
___
Stu
http://DownToEarthLawyer.com
 
C

c b

you feel you need to, and don't rock the boat.  Keep track of all
your expenses and file a Schedule C in the mean time.  And keep
track of all the hours you work.

Then plan to leave as soon as you reasonably can, whether it's a
year or two or more.

After you leave, file form SS-8 with the IRS, to have them
determine you were an employee.  At the same time take the company
to the state labor commission or sue in court to get paid back for
the company's portion of taxes you paid and any hours you should
have been paid for but weren't.

If you start causing trouble now, they would likely fire you. You
could sue, but it would be a much more difficult case than sueing
for back wages due to misclassification.
Thank you, Stu. Your advice has the right mix of practical and
emotional (mild revenge for being screwed). I'm trying to determine
what I need to be withholding (25% at least?).

What's the best way to learn of deductibles, hiring an accountant or
is there a simpler (checklist-style) resource? I understand I have to
be able to prove expenses, but am not sure what I can claim.

-c
 
P

Phil Marti

I don't want to have to leave, I don't have enough experience to go
any place else. I don't think I can say "hey, I am actually an
employee, start paying my employment taxes!" and I really don't know
how I can afford to live on this salary considering it's pre-tax
instead of after-tax like at every other job.
I've been around a long time and have never seen a salary stated in after-tax numbers, be it employee or independent contractor. Take-home for an employee is going to be less than the stated salary.

Stu gave you excellent advice. As for your followup questions, see IRS Publication 334 on the subject of expenses. Independent contractors are "running a business" even though you don't think of it as such.

See Form 1040ES for help in calculating how much you need to set aside for taxes. You'll also need to make estimated tax payments. More info in Pub 505. For those payments I highly recommend www.eftps.com. It takes some time to establish your account there, so don't wait until the last minute.

Phil Marti
VITA/TCE Volunteer
Clarksburg, MD
 
B

bill *

Thank you, Stu.  Your advice has the right mix of practical and
emotional (mild revenge for being screwed).  I'm trying to determine
what I need to be withholding (25% at least?).
Since you're being treated as a contractor you will have to make
quarterly estimated income tax deposits. The first one is due on April
17.

If you net $60,000 on this job, are single with no dependents, do not
itemize, and do not qualify for any education deductions or credits
(or any other credits) then you could owe as much as $15,400 of
federal income and self-employment tax. That would be 25% of $60,000.
So, 25% should be the maximum rate to use to compute those deposits.

I agree with Phil, Stu gave you excellent advice. Keep in mind, when
you're considering the revenge option, that you might wish to have
positive references from this empl... er other party to your contract.

Also, don't forget state tax estimated deposits if you live in a state
with income tax.
 
C

Confused

After you leave, file form SS-8 with the IRS, to have them
determine you were an employee. At the same time take the company
to the state labor commission or sue in court to get paid back for
the company's portion of taxes you paid and any hours you should
have been paid for but weren't.
That might be clever and even legal, but is it honest?
He is getting what he agreed to when he was hired; if he didn't like it he shouldn't have taken the job.
To go along with it, not complaining, but planning to sue afterwards seems much like stealing to me; even if it is legal stealing.
 
Ad

Advertisements

C

CRAIG CHITLIN

What's the best way to learn of deductibles, hiring an accountant or
is there a simpler (checklist-style) resource? I understand I have to
be able to prove expenses, but am not sure what I can claim.
~~~~~~~~~~~~~~~
Go to www.irs.gov and get a copy of Schedule C. It will show a lot of the
kinds of expenses you might incur.
No one has mentioned it, but if you are paid non-employee compensation you
will need to File Schedule C and Schedule SE.
Schedule SE is for self-employment tax (13.3% of your net income after all
deductions).
 
S

Stuart A. Bronstein

Confused said:
That might be clever and even legal, but is it honest?
Of course it's honest.
He is getting what he agreed to when he was hired; if he didn't
like it he shouldn't have taken the job.
He was hired as an employee, but they are cheating both him and the
IRS by treating him as an independent contractor. What the employer
is doing is illegal. And no, it is not honest.
To go along with it, not complaining, but planning to sue
afterwards seems much like stealing to me; even if it is legal
stealing.
If someone stole your wallet and you had the opportunity to get it
back without the thief's consent, would you just let him keep it
because taking it back would be like stealing it?

___
Stu
http://DownToEarthLawyer.com
 
R

removeps-groups

He was hired as an employee, but they are cheating both him and the
IRS by treating him as an independent contractor. What the employer
is doing is illegal. And no, it is not honest.
How is the IRS cheated? They get their money either way. Either you pay an
independent contract 10k a month, and they pay 1530 FICA tax, plus the
federal and state tax. Or you hire them as an employee with a salary of 9k
or something like that per month, so that the IRS still gets 1530 total FICA
tax.
 
C

Confused

He was hired as an employee, but they are cheating both him and the
IRS by treating him as an independent contractor. What the employer
is doing is illegal. And no, it is not honest.
If someone stole your wallet and you had the opportunity to get it
back without the thief's consent, would you just let him keep it
because taking it back would be like stealing it?
He was hired as an independent contractor, and paid accordingly.(Presumably they either would have paid him less as an employee, or not hired him at all.)
We have no idea if the company was acting in good faith or not, but he now has the obligation to call them on it. If they refuse to fix it (assumed for the sake of discussion that they are actually wrong...) then he can take it to the proper authorities. Instead he is letting them continue in hopes of a bonanza.

If has my wallet I will ask him to give it back; and I won't accuse him of stealing it unless I have to. Nor will I keep silent on knowing he has it in hopes of extorting money from him by threatening to have him arrested.

Stealing wasn't the right word to use; it is more like fraud.
 
S

Stuart A. Bronstein

Confused said:
He was hired as an independent contractor, and paid
accordingly.
First of all, he was told he had a job at a specific salary. When
he showed up to work was when they told him he was considered a
contractor, meaning fewer legal rights and 7.5% less money.

By law whether someone is an employee or a contractor is not an
issue between the employer and employee, but how the employee's job
is defined. In this case he was, by law, clearly an employee. It
is the employer's job to know that, and to treat him properly.
(Presumably they either would have paid him less as
an employee, or not hired him at all.) We have no idea if the
company was acting in good faith or not, but he now has the
obligation to call them on it.
Among people in business, this is an issue that gets a lot of
press. Any business person who uses a lawyer or account has heard
of it, and should know it's an issue to be wary of. That's why, in
my experience, in the vast majority of the times an employer gets
called on this issue, he fires the employee rather than renegotiate
the employment agreement.

If you went into a restaurant and were told they would not serve
you because of the color of your skin, would you care whether they
did so in good faith because they just don't know the law? If they
don't know the law, you can tell them what the law is until you are
blue in the face, but it is highly unlikely they will change their
mind just on your say-so.
If they refuse to fix it (assumed
for the sake of discussion that they are actually wrong...) then
he can take it to the proper authorities. Instead he is letting
them continue in hopes of a bonanza.
The issue isn't a bonanza. He won't get anything more than he is
entitled to by law. And frankly it will be a cheap lesson for the
employer. Because, at least in some states, if he is caught by the
unemployment workers comp people, he could get handed a huge fine
that will dwarf anything he may have to give to his misclassified
employee.

___
Stu
http://DownToEarthLawyer.com
 
Ad

Advertisements

P

Pico Rico

c b said:
Hi all,

Started a new job 3 weeks ago after signing nothing. Professional
capacity (obviously not CPA), paid with a company check - no
withholdings. Asked, was told IK.

This is my first time being hired in a professional capacity - just
got my licenses. Replied to job posting offering "xyz salary, non
negotiable - no experience necessary, we will train" and interviewed,
was offered, accepted. Lots of on-the-job training. All company
supplies, computers, etc.; I didn't provide anything. Was told when
to report in to work but not when to leave, some files require
attention until 4pm, others until 10pm, and in the end I average about
55 hours a week.

I feel very much like I am being screwed, that I am an employee based
on the factors on the IRS website regarding emp vs IK, and that the
high turnover at this company is due to shenanigans like this.

I don't want to have to leave, I don't have enough experience to go
any place else. I don't think I can say "hey, I am actually an
employee, start paying my employment taxes!" and I really don't know
how I can afford to live on this salary considering it's pre-tax
instead of after-tax like at every other job. FML.

Any thoughts / guidance / advice / help, please?

you don't say if your compensation is enough to balance out the fact that it
is you, not the employer who is paying the taxes. If he is "over
compensating" you so the net effect is balanced out, then you should get
your experience and move on. If not, you should consider moving on now. Of
course other options have been posted already.
 
G

Gene E. Utterback, EA, ABA

"Pico Rico" wrote in message
SNIPPED

you don't say if your compensation is enough to balance out the fact that it
is you, not the employer who is paying the taxes. If he is "over
compensating" you so the net effect is balanced out, then you should get
your experience and move on. If not, you should consider moving on now. Of
course other options have been posted already.

<< ------------------------------------------------------- >>

First, let me say that I am trying to slam my colleage Pico Rico, his just
happened to be the last in the line of posts. Consider this reply to be
general in nature.

There is NO WAY he is going to be "compensated enough to balance out"
because there are a whole myriad of other factors that come into play. For
example -

A) If the employer offers health insurance, even if its 100% employee paid,
subs can't usually participate. Individually purchased health insurance is
subject to medical underwriting in many jurisdictions and even when the
carrier MUST issue the rates will be higher than with a group plan sponsored
by an employer.

B) if the employer offers a retirement plan which they even partially fund
for the employee, the contractor misses out. True anyone can open a SEP or
SIMPLE IRA or SIMPLE 401(k), but then the entire cost of that plan is on the
subcontractor, not paid for by the employer or spread out over the whole of
the participating population;

C) how does a sub accrue vacation time or sick leave like an employee?

D) NO matter what anyone tells you, obtaining credit as a self employed
person is MUCH harder than when you're an employee. I've seen self
employeds who make TWICE as much as a similar employee NOT qualify for the
same loans - there is a LOT more underwriting involved;

E) the costs associated with preparing a Schedule C, with depreciation and
amortization will be higher than for a W-2 employee;

F) the audit risk for a W-2 return is almost NIL compared to the audit risk
for a Schedule C.

G) subcontractors may also need business licenses and have to abide by other
regulatory requirements;

H) subs also need to maintain good business records. While almost anyone is
capable of doing this, not everyone has the requisite knowledge, education
OR desire to keep the records necessary to be in compliance;

I) What about Worker's Comp coverage in case he's injured while working?

J) what about unemployment coverage? Schedule C sole Prop's don't get to
pay in nor do they get any benefit (at least not in Maryland);

I) finally, not really, but I have to stop someplace <g>, NOT everyone WANTS
to be in business for themselves.

So how are these things quantified? How much extra would YOU need to be
paid to make it worth your while? How much risk are you willing to accept
to be self employed.

Just my 2 cents,
Gene E. Utterback, EA, RFC, ABA
 
S

Stuart A. Bronstein

So how are these things quantified? How much extra would YOU
need to be paid to make it worth your while? How much risk are
you willing to accept to be self employed.
I remember seeing one analysis saying that to come out equally, an
independent contractor would need to be paid 50% more than a
similarly situated employee.
___
Stu
http://DownToEarthLawyer.com
 
P

Pico Rico

Stuart A. Bronstein said:
I remember seeing one analysis saying that to come out equally, an
independent contractor would need to be paid 50% more than a
similarly situated employee.

see, it IS possible.
 
S

Seth

Stuart A. Bronstein said:
By law whether someone is an employee or a contractor is not an
issue between the employer and employee, but how the employee's job
is defined.
Sort of: you can always be an employee by contract even if the law
would allow you to be a contractor. It's the other direction that's
prohibited. (That is, under some factual circumstances, the law
requires that the relationship be employment. It doesn't require that
the relationship be contracting.)

Seth
 
Ad

Advertisements

S

Seth

I remember seeing one analysis saying that to come out equally, an
independent contractor would need to be paid 50% more than a
similarly situated employee.
According to consultants I know, it's more like 100%, but that
includes allowance for downtime between contracts, so a long-term
contract would be discounted.

Seth
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top