Discussion in 'Business Operations' started by Rhett, Apr 13, 2004.

  1. Rhett

    Rhett LawnSite Bronze Member
    Posts: 1,071

    Hey guys, Did a search, gosh knows I am not the brightest bulb on the tree, and could not find the requirements of being a sub contractor. Trying to do my daughters taxes and would really appreaciate any help you could give me. Kinda surprised her with a 1099.



    LA LAWNS LawnSite Member
    Posts: 146

    i think you got the wrong crowd ...
  3. leadarrows

    leadarrows LawnSite Senior Member
    from N/A
    Posts: 925

    Employees and Independent Contractors

    Individuals frequently perform services for companies, non-profit organizations, individuals and others under a variety of different legal relationships. Whether the individual providing the services is classified
    as an employee is critical for a number of different purposes.

    Under federal, state and local tax laws, "employers" (which may include for profit and not for profit companies, individuals, schools, government agencies and other entities) are required to deduct and
    withhold from their "employees" a percentage of wages to be paid to the taxing authorities to insure the payment of income taxes. Employers who fail to properly deduct and withhold the appropriate amounts
    and pay them over to the appropriate taxing authorities can be subject to a variety of penalties and interest charges for unpaid amounts. Employers are also obligated to withhold and deduct FICA (i.e., social
    security), unemployment and other taxes and charges. The Internal Revenue Service can, in certain cases, impose personal liability upon the "responsible party" at the employer that has failed to properly
    pay these taxes. Classification of an individual as an employee will also affect whether the hiring party is subject to federal and local wage and hour laws, employment discrimination and other laws.

    Proper classification of an individual as an "employee" or "independent contractor" is critical. While the ultimate classification is a matter of common law principles as to whether the worker is subject to the
    control and direction of another only as to the result of his work (an independent contractor) and not as to the means (an employee), the Internal Revenue Service has established twenty factors it reviews to
    help determine the proper classification. The twenty factors are:

    1. Instructions to worker - A worker that is subject to instructions about when, where, and how to work is usually an employee.

    2. Training - An employee is more likely to be subject to training than an independent contractor.

    3. Integration into business operations - The greater the integration of a worker's services into the business, and thus the greater the business' control, tends to reflect an employment relationship.

    4. Requirement that services be personally performed - The greater the flexibility given the worker to designate who may perform services favors an independent contractor classification.

    5. Hiring, supervising, and paying for a worker's assistants - If the business provides assistants to the worker, as opposed to the worker providing his or her own assistants, this may indicate that
    the worker is an employee.

    6. Continuity of the relationship - Continuing, "on call" or similar long-term relationships, even if part-time, support classification as an employee.

    7. Setting the hours of work - An independent contractor usually sets his own work hours.

    8. Requirement of full-time work - Independent contractors, unlike employees, do not normally work full-time for one business and are free to work when and for whom they choose.

    9. Working on employer premises - If the business requires work to be performed at its offices, this indicates control over the worker (if the work could be done elsewhere).

    10. Setting the order or sequence of work - Independent contractors generally enjoy greater freedom to follow their own pattern of work routines and schedules.

    11. Requiring oral or written reports - Regularly required oral or written reports usually reflect an employee relationship.

    12. Paying worker by hour, week, or month - Employees are normally paid hourly, weekly, or monthly, while independent contractors are usually paid by the job or on a straight commission basis.

    13. Payment of worker's business and/or traveling expenses - This factor reflects a business' effort to control its expenses through an employee.

    14. Furnishing worker's tools and materials - Employees are normally provided necessary work tools and materials, independent contractors tend to furnish their own.

    15. Significant investment by worker - Employees are normally provided the requisite facilities by their employer, while independent contractors usually invest in and maintain their own work facilities.

    16. Realization of profit or loss by worker - A worker who can realize a profit or suffer a loss as a result of his services is generally an independent contractor. Of course, some employees may also
    realize a profit or suffer a loss, as a result of profit sharing plans or investments in the company. In that case, the IRS will examine whether the worker's profit or loss opportunities are different from an

    17. Working for more than one business at a time - Employees usually work for only one company, while independent contractors frequently work for more than one business.

    18. Firm's right to discharge worker - An employer exercises control over its employee through the threat of dismissal, while independent contractors normally cannot be dismissed so long as they meet
    their contractual obligations.

    19. Worker's right to terminate relationship- Employees are usually entitled to quit at their leisure, while independent contractors generally must fulfill contractual obligations.

    20. Availability of worker's services to the general public - If the worker usually makes himself or herself available to the public to perform services, he or she is more likely an independent

    The penalties for mis-classification under tax and other laws are severe and may, in some cases, create personal liability for the individual that has established the employment relationship or was a
    responsible party for deducting and withholding payroll taxes. Use caution in making the employee/independent contractor classification, and consult an attorney for advice.

    Other factors should be considered to determine whether an individual should be retrained as an employee or independent contractor. For example, it is much easier to dictate to and control the work of an
    employee. The employee is usually at the employer's offices throughout the work period and work can be more easily monitored. Also, the employee is more likely to develop some loyalty to the employer
    and is less likely to leave for another position. However, independent contractors may be freely terminated if the work is not satisfactory. With true independent contractors, there is no cost for employment
    taxes and fringe benefits.

    If you are considering the hiring of one or more individuals to perform services for your business or organization, you should consider the benefits and features involved in making that individual an employee
    or, alternatively, an independent contractor. Make sure that if you choose to make someone an independent contractor, that he or she is truly not an employee under the law. Small Business Attorney
    provides an Independent Contractor Agreement form for arranging for work from an independent contractor or consultant.

    Backup Withholding
    Even though a worker is a true independent contractor; the business does not escape all tax law obligations. When a contractor is retained, have him or her complete IRS Form W-9. In this form, the
    contractor certifies his or her taxpayer ID number (i.e., Social Security Number). With proper certification from the contractor, the employer's only obligation is to file a form 1099 with the IRS (with a copy to the
    contractor) showing the amount paid. Without this certification, the employer must withhold an amount as a backup for the IRS, much as if the worker were an employee. See IRS Publications 937, Employment
    Taxes; 505, Tax Withholding and Estimated Tax; and 550, Investment Income and Expenses, for more information.

    For related information see:

    Employment At Will

    Fair Labor Standards Act

    COBRA - Group Medical Benefits

    Family and Medical Leave Act of 1993

    Americans with Disabilities Act

    Plant Closing Law

    Workers' Compensation
  4. leadarrows

    leadarrows LawnSite Senior Member
    from N/A
    Posts: 925

    Then again maybe not.:p
  5. Rhett

    Rhett LawnSite Bronze Member
    Posts: 1,071

    Thanks Leadarrows for the information
  6. poolboy

    poolboy LawnSite Silver Member
    from earth
    Posts: 2,408

    Leadarrow you posted this once before and I passed the info along to a friend who is now disputing with the IRS that he should have been paid as a W-2 opposed as an 1099 in 2003. Thanks for posting!
  7. Team Gopher

    Team Gopher LawnSite Platinum Member
    from -
    Posts: 4,041

    Great post leadarrows!
  8. Expert Lawns

    Expert Lawns LawnSite Silver Member
    Posts: 2,660

    I just had my first request for a w-9. A commercial account asked me to send them a w-9. I thought they were supposed to send one to me? Does it matter? Like I said, it's my first one and I'm not quite sure how it works. Being a sole proprietor I have no employees and my SSN is my tax ID #. I hate giving it out for no reason. Can anyone shed some light on this subject for me? thanks
  9. specialtylc

    specialtylc LawnSite Bronze Member
    Posts: 1,656

    The W-9 is so they can send you a 1099. If you dont want to give out your SS #, then you should get a Fed. ID #.

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