employers, employee vs independent contractor

mccannable · 08-27-2014, 11:06 AM

I have a weird situation. In January I opened an auto repair shop and have been through our fair share of techs. We found one that was far better than any others we interviewed (and probably in the area) but he came on after our current tech was in a bad motorcycle accident. He came on as a temp 1099 employee. He is now going to be part of the team but does not want to be classified or payed as an employee. He refuses anything but to be paid as an independent contractor. This is good financially for us but can cause issues in the future if it is challenged and we are forced to pay back taxes for him as an employee.

What would you do? I know there are some grey areas on the 1099 side of classifications but overall he better fits as an employee. I also know a lot of techs are paid that was as a benefit to the employer(lower payroll taxes).

I have no issues with his classification as long as it doesn't come back to haunt us.

Maestro · 08-27-2014, 11:19 AM

Just went through this with my son and his company. As you probably know the Government has strict rules on what classified and employee verse a 1099 contractor.

What I know is this, if you can show they have the own insurance, and supply their own tools (which should be easy) and they set their own work schedule, and you have no direct control over their work then you should be fine. You could probably set it up cleanly that he is independent.

I was told by an accountant that employee/contractor line becomes an issue when the company has nothing but 1099's and it obviously they are not independent since they are required to work a particular schedule and the company provides them everything the need for the job.

Yes your payroll tax accounting is less complicated with a 1099, but they still have to pay all the taxes, you would have otherwise paid. The other issue is workman comp, and similar insurance for workers. With a 1099 you do not have to worry about this, but the 1099 does have to show they have coverage if it becomes an issue.

deeLow · 08-27-2014, 03:22 PM

Just curious, can an "employee/independent contractor" be held liable if the "employer/contractor" decides to pay using a 1099? Or is that strictly on the employer/contractor's part?

MidwestGolfBum · 08-27-2014, 04:17 PM

Quote:

Originally Posted by deeLow

Just curious, can an "employee/independent contractor" be held liable if the "employer/contractor" decides to pay using a 1099? Or is that strictly on the employer/contractor's part?

Liable for what? Technically the independent contractor (1099 person) should carry insurance that will cover any and all liability that comes back to them.

deeLow · 08-27-2014, 06:45 PM

Quote:

Originally Posted by MidwestGolfBum

Quote:

Originally Posted by deeLow

Just curious, can an "employee/independent contractor" be held liable if the "employer/contractor" decides to pay using a 1099? Or is that strictly on the employer/contractor's part?

Liable for what? Technically the independent contractor (1099 person) should carry insurance that will cover any and all liability that comes back to them.

What if it against the independents wishes?

Only asking because where I work we drive for contractors..but a few buddies of mine who work for a different contractor are paid 1099 style and they have no say against it. They drive the contractors vehicles and work set schedules..Also highly doubt they are on the vehicles insurance policy. The guy is very cheap and just interested in making money.

Mr Tonka · 08-27-2014, 10:58 PM

Quote:

Originally Posted by mccannable

I have a weird situation. In January I opened an auto repair shop and have been through our fair share of techs. We found one that was far better than any others we interviewed (and probably in the area) but he came on after our current tech was in a bad motorcycle accident. He came on as a temp 1099 employee. He is now going to be part of the team but does not want to be classified or payed as an employee. He refuses anything but to be paid as an independent contractor. This is good financially for us but can cause issues in the future if it is challenged and we are forced to pay back taxes for him as an employee.

What would you do? I know there are some grey areas on the 1099 side of classifications but overall he better fits as an employee. I also know a lot of techs are paid that was as a benefit to the employer(lower payroll taxes).

I have no issues with his classification as long as it doesn't come back to haunt us.

We paid out $1.4M last year to 1099 subcontractors. And i'm not a general contractor.

If he wants to be paid via 1099 you need him to provide the following:

He needs to create a company where he is the only employee.

You need to find and execute a subcontractor's agreement every year. This agreement will establish the tool, time schedule requirements that Maestro pointed out. Print it out every year with a new date and have him sign it.

He needs to provide liability insurance naming you as additional insured and make sure his is insurance is primary to yours. Talk to your agent. (primary so that should something happen that he's working on, his insurance would handle everything until limits are reached. THEN you're insurance would kick in.)

He needs to file for a worker's comp exemption. He works for his company, and by doing so it's ineffective to provide workers comp to protect himself from himself. Obviously, it would be better for him to provide his own work comp, but it likely won't be finically viable and difficult to find someone to write him.

He needs to submit pay applications to you for the work that he has done.

You need to pay his company for the work he has done.

Issue him a 1099 by Feb 1.

You're good.

Mr Tonka · 08-27-2014, 11:01 PM

Quote:

Originally Posted by deeLow

What if it against the independents wishes?

Only asking because where I work we drive for contractors..but a few buddies of mine who work for a different contractor are paid 1099 style and they have no say against it. They drive the contractors vehicles and work set schedules..Also highly doubt they are on the vehicles insurance policy. The guy is very cheap and just interested in making money.

The employer could be liable for paying all kinds of back payroll taxes and penalties should the IRS consider your buddies to be employees. You can save a lot of cash, but it's risky.

Fortunately for me, our entire industry works this way, so it would be highly unlikely for the IRS to pin something like that on me when i can easily prove that all companies like mine in FL operate the same way. Even so, you have to have all the T's crossed and I's dotted to stay out of the spot light.

Maestro · 08-28-2014, 08:53 AM

There is a guy I work with who recently bought a repair shop with a all the equipment and tools, he bought it for his own car hobby, but, he is not renting out the bays to independent mechanics. So he owns the shop and someone else manages the day to day activities and he collects a % of all activities in the shop. I am not sure if he is doing 1099 for the the mechanic or how it works, but it may be another ideal to consider doing.

You can have him rent space from you and he responsible for all his own work.

08-27-2014, 11:06 AM	#1
mccannable First Lieutenant 207 Rep 347 Posts Drives: 2014 X1 Join Date: Jan 2012 Location: central fl iTrader: (2)	employers, employee vs independent contractor I have a weird situation. In January I opened an auto repair shop and have been through our fair share of techs. We found one that was far better than any others we interviewed (and probably in the area) but he came on after our current tech was in a bad motorcycle accident. He came on as a temp 1099 employee. He is now going to be part of the team but does not want to be classified or payed as an employee. He refuses anything but to be paid as an independent contractor. This is good financially for us but can cause issues in the future if it is challenged and we are forced to pay back taxes for him as an employee. What would you do? I know there are some grey areas on the 1099 side of classifications but overall he better fits as an employee. I also know a lot of techs are paid that was as a benefit to the employer(lower payroll taxes). I have no issues with his classification as long as it doesn't come back to haunt us.
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08-27-2014, 11:19 AM	#2
Maestro Major 1058 Rep 1,268 Posts Drives: 2007 335i Sedan, 2021 X3 Join Date: Nov 2006 Location: Philadelphia iTrader: (0)	Just went through this with my son and his company. As you probably know the Government has strict rules on what classified and employee verse a 1099 contractor. What I know is this, if you can show they have the own insurance, and supply their own tools (which should be easy) and they set their own work schedule, and you have no direct control over their work then you should be fine. You could probably set it up cleanly that he is independent. I was told by an accountant that employee/contractor line becomes an issue when the company has nothing but 1099's and it obviously they are not independent since they are required to work a particular schedule and the company provides them everything the need for the job. Yes your payroll tax accounting is less complicated with a 1099, but they still have to pay all the taxes, you would have otherwise paid. The other issue is workman comp, and similar insurance for workers. With a 1099 you do not have to worry about this, but the 1099 does have to show they have coverage if it becomes an issue. Last edited by Maestro; 08-27-2014 at 05:17 PM..
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08-27-2014, 03:22 PM	#3
deeLow DOPE 148 Rep 759 Posts Drives: F80 Join Date: Jan 2014 Location: Earth iTrader: (2)	Just curious, can an "employee/independent contractor" be held liable if the "employer/contractor" decides to pay using a 1099? Or is that strictly on the employer/contractor's part?
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08-28-2014, 08:53 AM	#8
Maestro Major 1058 Rep 1,268 Posts Drives: 2007 335i Sedan, 2021 X3 Join Date: Nov 2006 Location: Philadelphia iTrader: (0)	There is a guy I work with who recently bought a repair shop with a all the equipment and tools, he bought it for his own car hobby, but, he is not renting out the bays to independent mechanics. So he owns the shop and someone else manages the day to day activities and he collects a % of all activities in the shop. I am not sure if he is doing 1099 for the the mechanic or how it works, but it may be another ideal to consider doing. You can have him rent space from you and he responsible for all his own work.
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