Independent contractor versus Employee?
Last year I worked for a company for 3 years and was told I was a full time independent contractor. I worked on site, used the employer's equipment and took direction and training from the creative director. I was expected to be there between 9 and 5 each day. I billed them once every 2 weeks for the hours, not by project.
In October of last year I was looking for a change and applied to a real full time position. My employer got word and offered to hire me right away. I currently work as an employee at this position now.
However, due to insane tax payments I owe for under estimating, and after doing my research, I would like to approach the employer in a professional manner and explain that I feel my services were taken advantage of.
1. Do you agree that I should have been considered an employee the whole time and the employer should have been paying half my taxes?
2. What do you think would be the best way to approach the employer about this while still remaining professional and not burning any bridges (or is that possible)?
- Anonymous1 decade agoFavorite Answer
As an employer it may be difficult to understand whether you should hire an employee or independent contractor. The Internal Revenue Service (IRS) uses three main categories to determine independent contractors:
Behavioral Control – An employee is generally told when, where and how to do the work.
Financial Control – An independent contractor can realize a gain or loss. An employee will be paid by the company and taxes are to be collected by the employer.
Type of Relationship – Usually independent contractors will have a written contract with specific outcomes to include a timeline.
Misclassification of and Employee
The determination of whether or not the worker is an employee or independent contractor is the responsibility of the business. If the IRS challenges the classification, the burden of proof is on the business. If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker. Need additional help determining your decision?
INDEPENDENT CONTRACTOR -- Bob Smith contracted with ABC Corporation to complete the plumbing on a housing complex. A signed contract established a flat amount for the services rendered by Bob Smith. Bob is a licensed plumber and carries workers' compensation and liability insurance under the business name, Smith Plumbing. He hires his own plumbers who are treated as employees for federal employment tax purposes. If there is a problem with the roofing work, Smith Plumbing is responsible for paying for any repairs. Bob Smith, doing business as Smith Plumbing.
EMPLOYEE -- Bruce Thompson an experienced electrician, verbally agreed with the company to perform full-time services at construction sites. He uses his own tools and performs services in the order designated by the company and according to its requirements and time frames. All supplies and materials are provided by the company. The company also makes frequent inspections of his work, pays him on a piecework basis, and carries workers' compensation insurance on him. Bruce does not have a place of business nor does he perform similar services for others. Either party can end the services at any time.
If you do decide to hire an independent contractor, then develop a specific contractor agreement and make certain your expectations are outlined. Hiring an independent contractor can be the right choice for small companies not yet ready to make the leap to having a full staff.
Reporting Independent Contractors in California
As of January 2001 any business that is required to file a federal Form 1099-MISC for services received from an independent contractor is required to report specific independent contractor information to California Employment Development Department (EDD). This information will be used to locate parents who are delinquent in their child support obligations.
If all the following statements apply, you must report the independent contractor to EDD within 20 days of paying/contracting for $600 or more in services by filing a DE 542. You are not required to report independent contractors that are corporations, general partnerships, limited liability partnerships, and limited liability companies.
You are required to file a Form 1099-MISC for the services performed by the independent contractor.
You pay the independent contractor $600 or more OR enter into a contract for $600 or more.
The independent contractor is an individual or sole proprietorship
- Anonymous5 years ago
This is a real controversy. I used to manage a limousine service. All the drivers were sub contractors. They paid their own taxes, covered their own Workman's Comp etc. One driver we put on lied on his application and said he had no back problems. He claimed he hurt his back working for us. When we told him that he was self employed and that we were not responsible, he sued us. We lost because the judge said that since he was using our equipment, and taking orders from us, that he was an employee and we had to pay him 30 thousand dollars. We appealed to the state level and still lost. Many companies and workers alike are not aware of this, but this case set a precedent. In the case of answer number one, I do agree. In the case of answer number two, as a subcontractor, you would be amazed at what you can write off as expenses. Talk to your tax accountant. Maybe, if you have already filed, you can do an amended tax return. If not, I would show him (your employer) this post just to give him or her something to think about. We went in to court pretty confident, and got our tails kicked.