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View Full Version : "1099 employees" Legal or Illegal?


LGL
08-20-2012, 07:37 PM
Can it be done legally?

DEPENDABLE LANDSCAPING
08-20-2012, 07:41 PM
I am not an accountant, but i do believe it is illegal to 1099 your employees. To pirposely not pay an employees taxes and comp insurance is against the law.
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JB1
08-20-2012, 08:13 PM
bump, this gonna be good.

zturncutter
08-20-2012, 08:46 PM
I am not an accountant, but i do believe it is illegal to 1099 your employees. To pirposely not pay an employees taxes and comp insurance is against the law.
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This is what my CPA has always told me, but I have to say my wife worked for a real estate mag for over 20 years in the office handling calls and in the field taking photos using his equipment on his schedule and got a 1099 every year. When the economy crapped out she was laid off, filed for unemployment and was told no go, she was a subcontractor. My CPA has no answer for this.

Duekster
08-20-2012, 08:48 PM
There is no such thing as a 1099 employee.

cgaengineer
08-20-2012, 08:54 PM
There is no such thing as a 1099 employee.

Just a sub contractor. If he uses your equipment, your trucks and on your schedule he is an employee.
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Duekster
08-20-2012, 09:01 PM
Just a sub contractor. If he uses your equipment, your trucks and on your schedule he is an employee.
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Exactly. While it is done often... it is not legal.

The two terms do not combine in the tax code. 1099 / employee does not exist

:drinkup:

grandview (2006)
08-20-2012, 09:07 PM
This is what my CPA has always told me, but I have to say my wife worked for a real estate mag for over 20 years in the office handling calls and in the field taking photos using his equipment on his schedule and got a 1099 every year. When the economy crapped out she was laid off, filed for unemployment and was told no go, she was a subcontractor. My CPA has no answer for this.

Might of been claiming her as a freelancer.

tjlco
08-20-2012, 09:28 PM
No no no and more no. Unless they have their own equipment & insurance & trucks ect....and subcontract work from you. Sure you can do it, I know guys that have been for a couple years. I'd hate to see the IRS penalties when they get caught

cgaengineer
08-20-2012, 09:35 PM
You could possibly lease your equipment to them...
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zturncutter
08-20-2012, 09:37 PM
No no no and more no. Unless they have their own equipment & insurance & trucks ect....and subcontract work from you. Sure you can do it, I know guys that have been for a couple years. I'd hate to see the IRS penalties when they get caught

I agree on the legality issue and the liability issue, but if someone like my wife is an employee under the law and files for unemployment and that doesn't throw up a red flag what the H_ll does it take.

larryinalabama
08-20-2012, 09:41 PM
I once got a 5$ bill for working for someone else...........just saying.

Landscape Poet
08-20-2012, 09:59 PM
I simply do not understand how this is legally possible. I hear a million guys talk about it and how paying cash to you employee is great...but my accountant says it is not legal of course and not as profitable as doing it the correct way.

cgaengineer
08-20-2012, 10:24 PM
I simply do not understand how this is legally possible. I hear a million guys talk about it and how paying cash to you employee is great...but my accountant says it is not legal of course and not as profitable as doing it the correct way.

It's all fine and dandy until that 1099 "employee" hurts someone or gets hurt himself.
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ztman
08-20-2012, 10:33 PM
Key is (1099 vs employee) do you exercise control over the individual as to how and when they perform the service. Test is dominion and control. Doesnt matter what you call them on the books, its what they are actually doing and if you are telling them when and how to do it. Many try to get around the employee designation, but if they are really and employee, dont try to misclassify them.

LGL
08-20-2012, 11:00 PM
Thats pretty much what my research has been showing, thanks for the comments.

LGL
08-21-2012, 08:35 AM
I once got a 5$ bill for working for someone else...........just saying.

What?????????????????

fl-landscapes
08-21-2012, 02:46 PM
This is what my CPA has always told me, but I have to say my wife worked for a real estate mag for over 20 years in the office handling calls and in the field taking photos using his equipment on his schedule and got a 1099 every year. When the economy crapped out she was laid off, filed for unemployment and was told no go, she was a subcontractor. My CPA has no answer for this.

He was probably breaking the law. Even a true 1099 sub contractor must have workers comp otherwise YOU are responsible for the fine.

Duekster
08-21-2012, 05:09 PM
He was probably breaking the law. Even a true 1099 sub contractor must have workers comp otherwise YOU are responsible for the fine.

In Texas you can get a waiver for WC from a sub contractor.
On commercial jobs a smart commercial owner will not allow that by contract.

My WC Carrier audits me and ask for copies of their coverage or they just increase my rates.

jvanvliet
08-22-2012, 06:37 PM
It's all fine and dandy until that 1099 "employee" hurts someone or gets hurt himself.
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We kill and eat our wounded...:p

You can sub-contract out your work, you can even lease your equipment. You can spell out in the contract the scope of the work, timeliness and completion dates. Those are not unusual provision's in contracts and doesn't necessarily make you the employer.

But if they get in your vehicles everyday and go to and from the job site everyday, if the equipment stays on your trailer... etc. etc. he's got flat feet, feathers and a yellow bill; he's a duck; or an employee.

If everyone in the industry were forced to comply with labor laws, 80% of these jerks would disappear.

cgaengineer
08-22-2012, 06:44 PM
We kill and eat our wounded...:p

You can sub-contract out your work, you can even lease your equipment. You can spell out in the contract the scope of the work, timeliness and completion dates. Those are not unusual provision's in contracts and doesn't necessarily make you the employer.

But if they get in your vehicles everyday and go to and from the job site everyday, if the equipment stays on your trailer... etc. etc. he's got flat feet, feathers and a yellow bill; he's a duck; or an employee.

If everyone in the industry were forced to comply with labor laws, 80% of these jerks would disappear.

The Chinese actually do eat human fetuses! Of course they also eat dogs...cats...and anything else that can be covered up with soy sauce.
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zturncutter
08-22-2012, 07:00 PM
The Chinese actually do eat human fetuses! Of course they also eat dogs...cats...and anything else that can be covered up with soy sauce.
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You never know where these threads will end up :laugh:

cgaengineer
08-22-2012, 07:16 PM
You never know where these threads will end up :laugh:

Crazy huh? From 1099 to Chinese food.
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cgaengineer
08-22-2012, 08:22 PM
I have been in some tight spots before but never knew how good I had it at the time.

;) :)
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Duekster
08-22-2012, 08:31 PM
Getting old is Hello Dolly.

cgaengineer
08-22-2012, 08:33 PM
Getting old is Hello Dolly.

Getting old sucks...
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Duekster
08-22-2012, 08:37 PM
Getting old sucks...
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Better than the alternative.

Sam75
11-06-2012, 04:05 PM
Hi everyone this should clear up any question of 1099 for "workers" not employees. Employees are just that you withhold taxes and match your portion and send it to the us gov. Sub contractors work with their equipment pay for their own gas and only give you a final invoice for the work and you pay for the one invoice. If you pay your subs weekly say $400.00 a week for 30 weeks and they use your truck, gas and equipment. They will be considered employees. "SEE IRS section 530 A" for more information on this.

Here is the latest news on the miscalculation of workers in the landscaping industry.

One important item The IRS has better ways of finding you than trolling this site.

Unemployment insurance claims, 1099 for subs on your schedule c income tax forms and sales volume over $500,000 a year

Over the last 3 years there has been a ton of new information

The IRS is hunting landscapers specifically for money!
Federal Dept of labor is hunting landscapers specifically for money!

State DOL is hunting landscapers specifically for money!

ICE is now is hunting landscapers specifically for money!


They are suppose to share information with each other but have found out that if one picks off the company and access fines there isn't much left for the others to pick at.
so they really are not telling each other anything anymore. Ice will come in and ask for I 9s and 1099s fine you and leave. They will not deport your workers or even talk to them they just want the money they know you will fire them and if you did it once you will hire someone else again and they will come back in a year or 2 for more money.

It is now a race to see who will fine you first.
Below are some links from the DOL talking to congress when they state over 62% of the landscaping industry pays workers as subcontractors. A study "The Economic Cost of Employee Misclassification in the State Of Illinois" states 28% of landscapers mis classify workers as independent subcontractors.

The state of California says up to 77% of southern california landscape companies are misclassifing workers as subcontractors.

Mr DeCamp from DOL:
I will say this to you in closing my remarks. The image
that is often conjured up of an independent contractor is a Web site designer, you know, someone who designs Web sites and Web pages for a multiplicity of clients and works out of his or her home, and is very much on the fly, on the go; an independent entrepreneur with a laptop and a vision and a business card and a chance to make himself or herself a wealthy person. Long may that person be treated as an independent contractor, because they are.

But there are people who are mowing lawns and driving trucks and working in garment linen factories, working in all different places around this country, who sure do look like employees to me.

Approximately 60 percent of the Wage and Hour Division's enforcement centers on low-wage industries, where violations of the laws we enforce tend to be the most prevalent. The agency devotes more than one-third of its enforcement resources to nine of those industries, including such sectors as janitorial services, construction and landscaping. The agency's experience has been that many of these same low-wage industries tend to have a high incidence of misdesignation of employees as independent contractors.

http://www.gpo.gov/fdsys/pkg/CHRG-110hhrg36728/html/CHRG-110hhrg36728.htm


http://www.faircontracting.org/PDFs/prevailing_wages/Illinois_Misclassification_Study.pdf

http://www.iowaworkforce.org/misclassification/MisClassificationFinal.pdf

In California, misclassification is an enormous problem.
But we are an enormous state. The California insurance
commissioner has reported that 30 percent of employers in the state do not carry workers' compensation insurance, and that is one of the sure signs that those employers' workers are being treated as independent contractors.

"Misclassification of workers"

I know most will deny anything like this in our industry but the facts are facts and they are coming your way soon.

Ric
11-07-2012, 12:31 PM
Thank you Sam75 for what appears to be very actuate information. It will be helpful to the small percentage of Business that actually wants to do the legal thing. Back when I had employee I used a Payroll service tied in with the Workers Comp insurance company. W C rates have dropped to around 5% (Not Sure) now but were 12.5% which made my labor burden 24.5% back in 2004. Then as now Many small Business can't survive by paying the extra labor burden and an additional costs like Health care is ruining small business which has been the back bone of our economy. 11/6/12 was a sad day for the small businessman.

.

NEW CITY LAWN CARE LLC
11-07-2012, 12:55 PM
FEDEX does it, they lease people the trucks, they dictate what and where people deliver packages, the owner is a 1099 sub contractor that's also required to have his own insurance, etc....

Sam75
11-09-2012, 02:01 PM
You and I don't have the legal staff or money to fight like Fed Ex however your point is a good one:

In 2007, FedEx agreed to pay $26.8 million to settle a decade-long class action lawsuit with 203 drivers who claimed they were misclassified as independent contractors.

http://www.legafi.com/lawsuits/news/476-fedex-ground-settles-3m-lawsuit

To give you an idea of the scope of litigation FedEx Ground is facing, one of these class action lawsuits represents an estimated 27,000 current and former ground-delivery drivers who are seeking nearly $1 billion in damages for back pay, truck purchases, overtime and costs they incurred as contractors, according to a Bloomberg news report.

Fedex Ground hasn’t waited for the courts to produce a final answer. In the seven years since the first lawsuit raised the issue of contractor or employee, the company’s methods have changed - prompted by the lawsuits and its growth. Today, many more of its contractors operate multiple delivery routes, and fewer are single-route drivers. “There is a big difference in the numbers,” said spokesman Bryan Iams. Specific numbers were not available, he said.

Now, every FedEx Ground contractor is required to be incorporated as a small business, treat its drivers as employees, secure workers compensation coverage and unemployment insurance for them, among other requirments, Iams said.

full article:
http://triblive.com/business/2223183-74/fedex-ground-contractors-company-delivery-employees-business-contractor-drivers-deliveries#axzz2BkMdVmHS

We can do this in our industry also but why? If my crew does all the work and I am basically a franchise of your company why not cut you out and keep my own route.

Speaking of franchises
The court ruled last fall that the Boca Raton, Fla.-based franchisor must pay back the franchise fees over 100 people — mostly new immigrants — paid the company, plus interest and lawsuit costs. The court’s opinion? Privately held Coverall misclassified its employees as franchisees, so their fees should be refunded.

article:http://www.forbes.com/sites/caroltice/2012/05/11/are-some-franchisees-really-employees/

Fed ex is a nationwide system of moving packages with a huge but simple business model. When they drop off a package the client never says by the way can you transplant that bush today? Microsoft also had a similar IC problem and they also settled.

The real question: Is the risk worth it anymore. 10 years "yes"! 20 years ago "yes" Today "not really".

This is one topic that really got my interest a few years back when a lawyer said as long as it is an industry standard practice you are safe. I asked him How would I prove that it is. He said well just ask some of your other business owners to come in a prove they do it also.
So the other question is will you open your books to the IRS to help a friend out? Well the other owners I talked to probably said probably not.

By the way I am not a lawyer or CPA I own a landscape company just like you. Mid size, 23 employees I have been in business over twenty years. I always look for new and interesting this to learn about, this certainly is a hot topic in the service industry.
Over the last 3 years it has been more of the legal side of the business that really intrigues me. 3 years ago a rash of FLSA lawsuits against local landscaping companies came through our area which was the start of my newest hobby. 3 years ago you could barely find anything on this topic. By the way most FLSA cases involve a set weekly or day rate amount, with no over time like an independent contractor status.
Winter is about to start in Chicago so if anyone else has any thoughts on this topic please share them thanks and have a great holiday.

Ric
11-09-2012, 02:43 PM
Sam75

Here in Florida we have a huge Law Firm that advertise heavy "DOES YOUR EMPLOYEER PAY YOU OVER TIME". Their motto sounds like "Screw the People" to me. But the point here is casual Labor could ruin you with one phone call to these leaches of society. Their lower than Wale Crap morals laugh all the way to the bank.

I have been there and done the close to 20 employees before Hurricane Charlie blew away my Nursery. I also paid a huge Worker Comp fine one time for not having the correct Insurance. Today I have peace of mind as a one man band. Now I try and stay as far under the radar as possible by being legal on paper. Few cash sales don't count any how.

.

Sam75
11-09-2012, 07:13 PM
We have the same ads here but it called the farm worker advocacy project. It is basically a referral service. They go out to nurseries and job site and ask things like does your employer deduct for uniforms You have to have a signature each year not just one from 3 years ago ( one landscaper had to pay 60000.00 in a settlement case over a signature for uniform deductions). Overtime which you cannot prove if they clocked out and even left the property they can say they were at work for 1/2 an hour each day and you never paid them unless you have cameras that prove different.

By the way we have cameras and keep copies for 3 years to avoid this problem. it is a long list of lawsuit possibilities. they refer the workers to a lawyer they lawyer sues the employer. the lawyer after collection donates a portion to the farm worker advocacy project. completely legal but it just doesn't make sense to me.
When I was younger and I was treated fairly I stayed where I worked if I felt I was being treated unfairly I first spoke to my boss if I couldn't work it out I left and got a different job.
And yes there are jobs out there. I offered my old boss when I was 19, try me for a week if I am not worth the money don't pay me the week is free to you. But if you like my performance Pay me for the week, hire me and promote me when you see me adding value to your business. I always succeed where I worked and was always promoted. If anyone can help make a company more efficient and more profitable why would you fire that person? That is what makes small business grow and succeed.

I still do that today some clients ask me will this kill my weeds? Of course Ill tell you what don't pay me until you see improvement in your lawn if you think I did a good job pay me. If you think my work isn't worth the money call me and tell me and its free. Within 30 days 99.9% of the time I get paid.

This is a service industry you only grow as good as you are

Have great night everyone

Tablandscaping
03-04-2013, 10:51 AM
Yep, its definitely illegal. I worked for a guy that gave his employees 1099's. He must have "covered" himself by saying at the interview he didn't take out taxes. I never thought anything about it, no big deal I thought. Come to find out at tax time I'm getting taxed more because of it since I have to pay his share in my SE Tax.

Not to mention he didn't have workmans comp, so when someone got hurt he was in a real tissy. I imagine he also claimed our payroll as a business expense since we were considered contractors. Once I found out what he was doing, I felt real cheap and cheated, and my desire to work for him crashed and burned. I am now starting my own business and will run it the right way. All of you bosses out there, treat your employees well and they will keep working for you and do a good job. This guy always wondered why his good help quit.