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Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees

 
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Old 05-02-2017, 05:34 PM   #1
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Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


Employee Classification: The basics
In most states, if you have employees you need workers compensation. Simple enough, but how is one assured they have accurately identify an employee vs. an independent contractor?


Who qualifies as an employee under workers compensation insurance?
An employee is loosely defined as an individual providing service to a for-profit business

For a rule of thumb, you are working with an independent contractor if you control the result (the WHAT) but not the manner or process in which completed (the HOW):


Identifying an independent contractor in 3 easy steps:
1. Does the contractor control the how – contract and in facta. Does the contractor control the manner in which the service is provided? Are you telling the contractor how to preform their work?
2. Do they perform a service, trade or operation that is different than that of your own business?
3. Are they independently established in their specific trade/ service, business or occupation? a. Do they provide service to general public and have stake in their business?

How to determine an independent contractor from an employee.

It is imperative that the work performed by the contractor is different than the work performed by the owner. For example, a painting company who hires a contractor for window installation.

Generally, independent contracts are paid in full for completion of task while employees are paid in cash or weeks monthly basis. Quick guidelines: independent contractors are in charge of providing equipment and materials and create their own time frame. The contractor needs to be in control of the manner in which the work is executed. Finally looking at the form of payment can help determine independent contractors from employee statues.


I hire 1099 independent contractors. Do I need Contractors Worker’s Compensation insurance?

Employers are not obligated to provide 1099 independent contractors with workers compensation. Remember independent contractors work for themselves. You control the result but not the process.

Remember if you are having trouble classifying and independent contractor bring it back to the question of what vs. how. Do I control what is done or how it’s done.

Note: Inappropriately classifying an employee can result in a fine or penalty. A temporary employee is not equal to and independent contractor.
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Old 05-05-2017, 10:46 AM   #2
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


so what if a painting company secures a very large project, and wants to sub a part of it to another painting company?
In your explanation, this would not fly because they both do the same thing. You say it is imperative!
That doesn't make sense to me.
If they are truly a a separate company, with their own insurance, own marketing, own clients- it shouldn't matter.

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Old 05-05-2017, 01:29 PM   #3
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


Here in Canada, the Canada Revenue Agency (IRS) uses 6 criteria as per the following to determine the relationship.
  1. Control over the worker - Authority to exercise control over what will be done and the manner of doing it is one of the most important criteria for an employee. It does not matter if the control is actually exercised. A master/servant relationship exists if the right to control exists.
  2. Ownership of tools and equipment - Where the payer supplies tools, materials, etc., it is indicative of control over the worker. This supports an employer/employee relationship.
  3. Subcontracting work or hiring assistants - This factor can help determine a worker's business presence because workers that have the ability to subcontract work or hire assistants may affect their chance of profit and risk of loss.
  4. Degree of financial risk taken by the worker - The higher the degree of financial risk, the more likely that the worker is will be deemed a self-employed contractor as the worker may not be reimbursed for any fixed ongoing costs incurred by the worker.
  5. Responsibility for investment and management held by the worker - A significant investment is evidence that a business relationship may exist. You should also consider if the worker is free to make business decisions that affect his or her profit or loss.
  6. Worker's opportunity for profit or loss - Consider whether the worker can realize a profit or incur a loss, as this indicates that a worker controls the business aspects of services rendered and that a business relationship likely exists. Employees normally do not have the chance of a profit and risk of a loss. Self-employed individuals normally have the chance of profit or risk of loss, because they have the ability to pursue and accept contracts as they see fit.
http://www.cfib-fcei.ca/english/arti...ontractor.html
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Old 05-06-2017, 11:27 PM   #4
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


Last time I got involved in a similar discussion to this, I ended up being threatened via PM. I hope that doesn't happen again this time.

Quote:
Originally Posted by eastend View Post
so what if a painting company secures a very large project, and wants to sub a part of it to another painting company?
In your explanation, this would not fly because they both do the same thing. You say it is imperative!
You're missing a few things:

Lets look at a job where Bechtel Painting hires Peter Kewit and Sons Painting

Quote:
Identifying an independent contractor in 3 easy steps:
1. Does the contractor control the how – contract and in facta. Does the contractor control the manner in which the service is provided? Are you telling the contractor how to preform their work? Bechtel only tells PKS what to paint, and what color via their contract. Bechtel doesn't get to say what kind of brush PKS buys
2. Do they perform a service, trade or operation that is different than that of your own business?
3. Are they independently established in their specific trade/ service, business or occupation? a. Do they provide service to general public and have stake in their business? PKS is an entirely independent company from Bechtel

How to determine an independent contractor from an employee.

It is imperative that the work performed by the contractor is different than the work performed by the owner. For example, a painting company who hires a contractor for window installation.

Generally, independent contracts are paid in full for completion of task while employees are paid in cash or weeks monthly basis. Quick guidelines: independent contractors are in charge of providing equipment and materials and create their own time frame. The contractor needs to be in control of the manner in which the work is executed. Finally looking at the form of payment can help determine independent contractors from employee statues.
Another thing to look at is the simple question, does this appear to be a dodge by the contractor to avoid their share of the employment burden (SS, other payroll taxes and WC)? In the case of the Bechtel/PKS relationship, while they are in the same buisness, in no instance is there a "dodge" occurring. All aplicable taxes and fees on employees and hours work are properly being paid by the employer.
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Old 05-07-2017, 12:12 AM   #5
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


In this state you must have a contractors license to be an independent contractor. I also believe an independent contractor must file their taxes as a business. A Schedule "C" for example if you're a sole Proprietor.

The Franchise tax board requires the license.


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Old 05-07-2017, 12:14 AM   #6
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


Quote:
Originally Posted by eastend View Post
so what if a painting company secures a very large project, and wants to sub a part of it to another painting company?
In your explanation, this would not fly because they both do the same thing. You say it is imperative!
That doesn't make sense to me.
If they are truly a a separate company, with their own insurance, own marketing, own clients- it shouldn't matter.
The other criteria kick in. Do they get the majority of their work from you? Do you supply certain things? It's not just one or two things they look at.
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Old 05-07-2017, 07:47 AM   #7
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


my only point was that the OP stated it is imperative that the sub being doing different work.
if all other criteria are met( separate company with payroll, insurance, marketing, other projects etc), then it shouldn't matter.
and therefore it is not imperative!
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Old 05-07-2017, 09:01 AM   #8
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


Be very careful in NYS. I hired a company that met the unemployment criteria for a seperate company, except they borrowed some of my tools and because of that they classified them as employees and the workmen compensation board tried to get me to pay 48000 in penalties etc. Been telling them for 3 years they are wrong as when I have employees I have always paid W?C insurance.
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Old 06-15-2017, 04:04 PM   #9
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


Too much government interference in the dollar chase...then they involve their homeboys in the insurance industry....kiss 40% or your production good-bye....simple as that
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Old 06-16-2017, 05:26 PM   #10
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


Quote:
Originally Posted by eastend View Post
my only point was that the OP stated it is imperative that the sub being doing different work.
if all other criteria are met( separate company with payroll, insurance, marketing, other projects etc), then it shouldn't matter.
and therefore it is not imperative!
A company with a payroll isn't a criteria. Size might play a roll, but it isn't listed on the IRS site as a factor.

Insurance isn't a criteria (Many contractors require their guys to get WC and Liability to try to support the 1099).

Marketing definitely doesn't matter, but other projects do. They consider where you get the majority of your work. Not one long project, but is your main source of work through one company.

I have actually been through this process with our state and the Feds on both ends (Employee and Employer).
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Old 06-16-2017, 09:01 PM   #11
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


Quote:
Originally Posted by Californiadecks View Post
In this state you must have a contractors license to be an independent contractor. I also believe an independent contractor must file their taxes as a business. A Schedule "C" for example if you're a sole Proprietor.

The Franchise tax board requires the license.


_____________
That's not true. Only if the trade or service is covered by the CSLB does a firm require a licence. And the license is issued by the CSLB not Franchise Tax Board (CA state taxes). Window washers and cleaners come to mind.
The independent contractor should file Scheldule C regardless of the business structure.
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Old 06-16-2017, 09:57 PM   #12
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


Quote:
Originally Posted by cvtsf View Post
That's not true. Only if the trade or service is covered by the CSLB does a firm require a licence. And the license is issued by the CSLB not Franchise Tax Board (CA state taxes). Window washers and cleaners come to mind.

The independent contractor should file Scheldule C regardless of the business structure.


If your working as a sub as a building contractor for more than 500.00 for the total job cost you need a license.



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Old 06-16-2017, 10:05 PM   #13
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


Quote:
Originally Posted by cvtsf View Post
That's not true. Only if the trade or service is covered by the CSLB does a firm require a licence. And the license is issued by the CSLB not Franchise Tax Board (CA state taxes). Window washers and cleaners come to mind.

The independent contractor should file Scheldule C regardless of the business structure.


Window washers are Not Building contractors. Why on God's green earth would you think I was talking about a business other than a building contractor on a contractor talk forum?

Single-member limited liability company (LLC). Generally, a single-member domestic LLC is not treated as a separate entity for federal income tax purposes. If you are the sole member of a domestic LLC, file Schedule C or C-EZ (or Schedule E or F, if applicable) unless you have elected to treat the domestic LLC as a corporation. See Form 8832 for details on making this election and for information about the tax treatment of a foreign LLC.

Single-member limited liability companies (LLCs) with employees. A single-member LLC must file employment tax returns using the LLC's name and employer identification number (EIN) rather than the owner's name and EIN, even if the LLC is not treated as a separate entity for federal income tax purposes.



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Old 06-16-2017, 10:12 PM   #14
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


Quote:
Originally Posted by cvtsf View Post
That's not true. Only if the trade or service is covered by the CSLB does a firm require a licence. And the license is issued by the CSLB not Franchise Tax Board (CA state taxes). Window washers and cleaners come to mind.

The independent contractor should file Scheldule C regardless of the business structure.


Never said a license was issued by the FTB. I said laws pertaining to independent contractors are set by several agencies and the FTB is one of them.

Quote:
Independent contractor versus employee


Not all workers are employees as they may be volunteers or independent contractors. Employers oftentimes improperly classify their employees as independent contractors so that they, the employer, do not have to pay payroll taxes, the minimum wage or overtime, comply with other wage and hour law requirements such as providing meal periods and rest breaks, or reimburse their workers for business expenses incurred in performing their jobs. Additionally, employers do not have to cover independent contractors under workers' compensation insurance, and are not liable for payments under unemployment insurance, disability insurance, or social security.

The state agencies most involved with the determination of independent contractor status are the Employment Development Department (EDD), which is concerned with employment-related taxes, and the Division of Labor Standards Enforcement (DLSE), which is concerned with whether the wage, hour and workers' compensation insurance laws apply. There are other agencies, such as the Franchise Tax Board (FTB), Division of Workers' Compensation (DWC), and the Contractors State Licensing Board (CSLB), that also have regulations or requirements concerning independent contractors. Since different laws may be involved in a particular situation such as a termination of employment, it is possible that the same individual may be considered an employee for purposes of one law and an independent contractor under another law. Because the potential liabilities and penalties are significant if an individual is treated as an independent contractor and later found to be an employee, each working relationship should be thoroughly researched and analyzed before it is established.

There is a rebuttable presumption that where a worker performs services that require a license pursuant to Business and Professions Code Section 7000, et seq., or performs services for a person who is required to obtain such a license, the worker is an employee and not an independent contractor. Labor Code Section 2750.5


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Old 06-16-2017, 10:25 PM   #15
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


If the Franchise Tax Board can use as evidence that you not being duly licensed to be an independent contractor, proves you're not, trust me when I say "THEY WILL"!.



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Old 06-16-2017, 11:20 PM   #16
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


Federal tax purposes has one set of criteria, but each stste can have their own for other purposes. You can be an independant contractor under Federal tax law, but an employee under state labor laws, for instance.
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Old 06-17-2017, 09:03 AM   #17
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Re: Employee Or 1099? 5 Tips To Correctly Identify Independent Contractors From Employees


Quote:
Originally Posted by Framer53 View Post
Be very careful in NYS. I hired a company that met the unemployment criteria for a seperate company, except they borrowed some of my tools and because of that they classified them as employees and the workmen compensation board tried to get me to pay 48000 in penalties etc. Been telling them for 3 years they are wrong as when I have employees I have always paid W?C insurance.
So just send that company a bill for renting your equipment...

This stuff simply sucks... it's a way for big business/industry to use government to force you to use a service...

Why can't we get them to force HO's to buy OUR product to own a home?...

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