View Full Version : 1099 empoyees--legal

04-20-2003, 06:22 PM
I have a friend in the business and he 1099s his
employees so he can get the deduction without
paying workers comp/

Is is legal to 1099 an employee so they are a subcontractor
and not an employee, even though they get paid by the hour.
he is definitely an employee not a sub

The employee/subcontractor is getting ripped off cause he
has no insurance, liability, no writeoffs.?????right or wrong

Is this ok or crooked?? I have done everything legit but
i want know what you think about this other bus. owners decision
before i ever try it

04-20-2003, 07:16 PM
He is breaking the law...no question. Maybe Bruce Stansberry will view this thread and shed some light for you...and your idiot friend.

John Allin
04-20-2003, 09:13 PM
It's as illegal as it gets......

04-20-2003, 09:25 PM
Yes and never get caught! You will be paying fines out of your tush!!!!!!!!! Workers comp is the ONLY way to do it right.

Doc Pete
04-20-2003, 09:54 PM
Originally posted by rodfather
He is breaking the law...no question. Maybe Bruce Stansberry will view this thread and shed some light for you...and your idiot friend.
As I was told, if the worker doesn't have WC, it falls back on the one paying the worker. If he doesn't pay the WC, the worker can sue him...... It's been done, to the tune of $18,000. The worker told the employer either you pay me $18,000 for "lose of use" or I go the state WC bureau.........

04-21-2003, 10:14 AM
Probably not illegal. Work comp depends on the laws of each state.

From the IRS standpoint there is probably no way they are not employees. They should be employees, payroll taxes withheld, etc.

What will he do when someone gets hurt and turns in a workmen's comp claim. The "contractor" will forget that he said it was ok to get a 1099.

Or one will go file for unemployment after they are fired. Then the state will determine that they were an employee and you are subject to back payroll taxes.

And then the state will share that information with the IRS and they will want their back taxes.

And then your friend won't have enough money to pay the taxes and fines.

And then.........

Out of business!!

Moral of story, do it right to start with!

Fantasy Lawns
04-21-2003, 05:23 PM
He is gambling with the devil .... n the IRS NEVER loses ..... the back pay on W/C & Payroll taxes ..... That's gonna leave a mark

All it takes is 1 accident or 1 "sub contractor" to make a phone call

Get the W/C even if not required by your state (less than 3 employees)

Educate customers that you have it & what it means to them

Got Grass?
04-21-2003, 06:31 PM
As far as I thought (I know almost nothing about this kinda stuff) if the person get paid by the hr then they are automatically your employee.
If they work FOR you they are an employee. If you contract another company out to work then they are a sub.
A subcontractor provides his own means of completing the work, truck tools etc.. I assume you can lease something to him but then it would get tricky. He can choose when to work, how & when the work gets done. He can hire anyone he wants to help him with the work. Providing they are an employee of his & not another sub contractor (if thats in the agreement)...

So, basically you can provide your subcontractor with a spec. sheet for the job. Such as material (stone/mulch etc...) types & amounts (Install a depth of 3-6" etc...), equipment limits (no dumps or skids on the property), A start & finish deadline (salt the lot by 7am, finish the install by wed. so the sod guys can come in Thursday.etc...). etc...etc... & so on...
The rest is up to the sub....

I could be completely wrong but like I said I don't know.
I would also like to hear others comments & tips for the use of subcontractors.
This is defiantly a complicated matter you NEED & MUST discuss with your lawyer & accountant about. The smallest detail can lead you to massive fines & quite possibly shut you down for good.

A1 Lawn@Landscapes
04-21-2003, 11:26 PM
Go to the IRS website. Their is a 20 question worksheet there to determine if someone is an employee or a sub.

04-21-2003, 11:32 PM
If they work for you they are employees no matter what method of pay they receive.

To qualify as a sub in this instance they must pay their own bills, have their own ins, have their own truck and equipment, pay for their own gas, etc.....They must also be a registered company

You write company a check.

There are a few small loop holes to this, but I wont post them publicly and they really don't prettier this matter.

Got Grass?
04-21-2003, 11:51 PM
Originally posted by LAWNGODFATHER

To qualify as a sub in this instance they must pay their own bills, have their own ins, have their own truck and equipment, pay for their own gas, etc.....They must also be a registered company

Duh forgot about that (MAJOR) part.... lol

04-22-2003, 12:07 AM
I do a lot of subcontracted landscape installs, I have been known to barrow their truck and skid steer to do a paticular job here n there. But this does not affect my status with the IRS.

But yes, A sub can be supplied materials and specs, but the sub supplies the rest.

Got Grass?
04-22-2003, 12:48 AM
Oh, and a sub can do any additional work they choose. They are not exclusive to you. Just like how you can take on any customer you want or drop any you don't want.
Al tho it is a good idea to have a non compete clause, so they can't set up a deal to undercut you, remove you from being the middle man & take your customers away.

Turf Technologies
04-22-2003, 10:31 PM
If you set the work hours and they are in your truck there an employee.

04-23-2003, 12:03 AM
I have a couple of other friends who work for contractors
with same deal. They have to pay all their own taxes and
self-employment even though they are employees.

one of them was washing windows as an employee and
he scratched a window and it had to be replaced.

The contractor tried to make him pay 7500 for the replacement and witheld all his pay, he turned them in to the dep. of labor and is still waiting to see what happens.
Im glad Im not taking stupid chance!!!!!

Mr.Stripey Lawn Care
04-24-2003, 10:47 PM
In Ohio I am a house framer, and all though I don't know much about the workmans compensation(except that it saved my butt when a nail went through my hand), here you can pay your employess as sub contractors, that is what the 1099 enables. The benefits for the owner is that he gets to keep more money, pays no employee taxes...The benifits for the "sub-sub-contractor", what we call them, is that they can write off vehicles, mileage, fuel, etc...but the most major drawback is, What average Joe takes his weekly checks and saves enough money to pay the IRS at the end of the year? Not too many. They do have to pay taxes, it just isn't taken from them weekly. Before I started for my boss, he paid all his people that way, as sub contractors, but most of them didn't save money for the 8,000 dollars or whatever it might have been, and got bit in the rear by the fabulous Uncle Sam.

100% Legal, at least here...

04-28-2003, 12:52 AM
No, not legal just because people do it doesn't make it right.

These people are 99 times out of 100 employees. The fact that the employer is treating them as sub contractors doesn't make it legal.

Rex Mann
04-28-2003, 03:25 AM
Mr. Stripey,

I started my business in Ohio and, had it for 9 years there. Ohio or any other state does not dictate who and what a sub is. The IRS does that.

Guys just starting out do that to save payroll taxes, workers comp., higher insurance rates and unemployment taxes. I pay about 60K just for WC per year. I could put an extra 100K in my pocket if I 1099'd everyone.


Rex Mann

04-28-2003, 05:04 AM
Internal Revenue Service. It is the same for all 50 states.

I missed that Rex

I had a guy who I interveiw wanting me to 1099 him, he wanted this to escape wage garnishment, I didn't hire him because he could not be considered as a sub contractor. I would love to do this, but it's not possable.

Mr.Stripey Lawn Care
04-28-2003, 09:20 PM
First I would like to apologize. I am not very well educated on the subject, and should not be speaking (posting) on the matter. But in the framing world, my boss told us that he was considering it, so that he could bounce back from our down time. Builders couldn't poor concrete, so we had nothing to put any houses on, and in turn were laid off for 2 months. He is very competent, and am almost certain that he wouldn't do anything illegal. I am not a company owner with employees though, so I don't know.