# employee or 1099



## theo4312 (Aug 16, 2010)

I am new to this industry and have a general question about employee status. In doing my research to help start this business; every contractor I have talked with 1099's their employees. Am I not aware of a new law or loop hole that allows this?


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## A. Spruce (Aug 6, 2010)

Check with your local labor board for a definition of "employee" and "1099 requirements". Many companies falsely claim employees (W-2 ) as subcontractors (1099 ). The primary reason is not having to deal with payroll taxes or provide benefits.


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## JumboJack (Aug 14, 2007)

You 1099 sub contractors.You W2 employees.
Some will come along and argue but it it pretty cut and dry.


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## Leo G (May 12, 2005)

You cannot 1099 an employee, that would be illegal.


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## RobertCDF (Aug 18, 2005)

I explain to most of my potential customers that we actually have full LEGAL employees including work comp insurance (I bet maybe 1 or 2 other deck contractors have work comp and such). I explain to them how the work comp ins works and how liability ins works so they know that they are covered and safe with us. Most of the construction around here is 1099ed employees (man I would hate to get that fine from the IRS, go look it up, it's not worth it). So if you want your electrician to come and and wire the place for you then he is 1099ed. But if you have a carpenter or laborer helping you then you better follow the rules and make him an employee.


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## theo4312 (Aug 16, 2010)

*1099 or employee*

Thanks for responses, I understand the law and IRS(wife is an accountant), I am talking about guys that give a guy a dozer, excavator or even the grademan the tools to operate and then 1099 them?


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## Framer53 (Feb 23, 2008)

theo4312 said:


> Thanks for responses, I understand the law and IRS(wife is an accountant), I am talking about guys that give a guy a dozer, excavator or even the grademan the tools to operate and then 1099 them?


It will work for a few years. until the IRS audits them or the person goes to the labor office and draws unemployment.

It is illegal, but in the industry it has been done for years. Times are changing. As has been mentioned, the fines are not small.


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## A. Spruce (Aug 6, 2010)

theo4312 said:


> Thanks for responses, I understand the law and IRS(wife is an accountant), I am talking about guys that give a guy a dozer, excavator or even the grademan the tools to operate and then 1099 them?


Go back and read the law again, you'll see that if you provide a significant amount of tools or equipment for the person to do the job, then they are an employee, not a sub. Exceptions would be directly hiring labor from another contractor - making them a sub, or hiring from a temp agency where you'll be billed for services rendered.


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## jeffatsquan (Mar 16, 2009)

I believe IRS has what they call a test on-line that you answer several questions and it will tell you weather an individual, is a employee or a sub.


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## flashheatingand (May 3, 2008)

It sounds as if you want to 1099 your guys. That isn't good. We are supposed to be legitimate contractors, and our guys are to be given some assurances of security. If you can't provide the hours, well that's one thing. But, at least the guys deserve some sort of coverage / protection, should something happen.


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## Tom Struble (Mar 2, 2007)

i think everybody should be 1099....pay for your own sh*t


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## fast fred (Sep 26, 2008)

colorado is a huge 1099 state, I bet less than 20% of the employees out there are actually insured and w-2

at least 5 + years ago they tried to pass some laws regarding insurance it was mostly to weed out illegals. Well every home builders association said it would just cost too much to legally insure workers and would destroy the home building business, it would do little to go after the illegals......... so nothing changed.

the term here is I'm a sub of a sub of a sub

I know alot of people who work as a 1099 exclusivly for one contractor maybe two. Eventually the irs, but it's mostly been insurance companies that uncover these things and go after contractors and subcontractors for back insurance, not paying enough, and wondering why there isn't a workmans comp policy on them.

The best thing is to put yourself in the position you want to be, employee or sub. I choose 8 years ago to be a sub, I work for multiple people, carry insurance and float around from job to job contractor to contractor and now mostly homeowners. You can't find anything wrong with what I do.

Most of the time contractors will treat you like an employee, I just fire back and say I'm a sub, you wanna make me an employee thats great I'd love to be your employee, this is what I want and this is what the goverment wants, if you can't pay up then I'm a sub and this is how we are operating.

some quick questions to find out if the worker is a 1099 or a w-2

1) does the person get work from multiple contractors and homeowners? Or work exclusivly for one or two contractors?

2) does the person have *ALL* their own tools to perform their job?

3) does the person have liablity insurance, health insurance, work under a corporation or trade name? Do you make checks out to the individual or to a company name?

4) does the person set their own hours, arrive at work when they want, take lunch when they want, and leave when they want?

5) does the person decide how to complete the project with little or no direction from the contractor. Other than this is what I want make it look like this?

6) a grey area is that your suppose to be paid set amounts not hourly I do alot of work hourly for homeowners and contractors we are usually happy with the situation but the irs isn't.

If the answers are yes then your a subcontractor and get 1099


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## JamesDibben (Apr 5, 2010)

That's a great list, Fred!

I understand the desire to avoid the extra taxes. If done right (like keeping to that list) you can have a nice relationship with a subcontractor. The problem happens when you try to 1099 someone who really is an employee. You really end up with a confused employee and no one can tell where the line is between the two companies is located. You are just trying to dodge takes and your employee/sub will start to feel taken advantage of. Especially when he goes to file his taxes and gets nailed.


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## flashheatingand (May 3, 2008)

tomstruble said:


> i think everybody should be 1099....pay for your own sh*t


Thats why unions were formed. Thats why social security was created. You can't have a society in which everybody pays for their own s__t. 

It simply doesn't work. These are tough times, but going 1099 on the help is not the answer.


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## dayexco (Mar 4, 2006)

flashheatingand said:


> Thats why unions were formed. Thats why social security was created. You can't have a society in which everybody pays for their own s__t.
> 
> It simply doesn't work. These are tough times, but going 1099 on the help is not the answer.


oh, i get it...by your line of thinking, i just go next door to my neighbors and steal whatever i've neglected to provide for myself...hey, good plan!!!


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## Leo G (May 12, 2005)

flashheatingand said:


> Thats why unions were formed. Thats why social security was created. You can't have a society in which everybody pays for their own s__t.
> 
> It simply doesn't work. These are tough times, but going 1099 on the help is not the answer.


This would be a much better place if everybody in society pulled their own weight and provided for themselves instead of relying on someone else to pull their share of the weigh.

If I can do it why the hell can't they? Unions were formed so companies couldn't take advantage of the workers like they were doing, 14 hour days, no safety for the workers, don't care how dangerous it is - just do it mentality.

Social security was set up so the average person was dead before they would be eligible to receive it. Now that we are living longer a lot more people get to collect. And then you go and live for 30 more years and collect for that long. This is not how it was designed.

And what makes you think I should pay for your sh!t?


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## Jaf (May 10, 2010)

I've spent time trying to figure out the 1099/w-2 question also. 

Went to the IRS office, explained my situation to the nice lady behind the counter, she listened and handed me a couple of pamphlets explaining the differences. Took them home and read them. Was even more confused. Went back to the office, and talked with the lady again. She thought 1099s where fine in my situation.

Few years later (early this year), I talked with a lawyer who specializes in construction about fine-tuning my contracts. I brought up the 1099/w-2 topic with him. He also thought 1099s, where the smartest answer.

Without getting into all the details (The pamphlets from the IRS, goes into all that ), I'll try to nut-shell my choice. 

First, *one* parameter the IRS uses to consider whether a person is an employee or a sub is "what is the industry standard in that profession". In light construction, around here anyway, 1099s vastly outnumber w-2s.

Second, I always get contracts signed from all my subs for each job, among other things it always states they are subs. I do not use the same people on every job. There are a couple, I use frequently, but they don't work only for me.

Thirdly, I do direct the carpenters and laborers, this puts me in the gray area. I also supply the crew tools. I rely on One and Two to hopefully tip the scale into the 1099 area.

Fourthly, I carry worker's comp anyway... Because if someone gets hurt, I suspect any lawyer is going to try and make the claim that they are an employee, no matter what the facts are.


Personally, I'd prefer having an employee, I think it would be more profitable, financially. True subs expensive, after all they are after the dollars as much as I am. 

I haven't put a payroll system in place yet. Also, obviously, I like the fact I don't have people who rely only on me for a living.

Eventually I will, but currently my lawyer says its not the smartest move, He recommended forming an LLC, before taking on a worker. I didn't ask why... (lawyer's are expensive :whistling, that'll be another days conversation)


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## SolutionsbySull (May 13, 2010)

I heard that State Tax departments have different testing criteria than the FEds and you can win on one level and not on the other. For instance in one Example a 1099 was voided since the "contractor" who set his own hours did not have a phone book ad and could n't be considered a legit business.


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## JamesDibben (Apr 5, 2010)

Without hiring a lawyer the IRS always wins.

I would try (try being the key word) to follow what they (IRS) want you to do rather than finding attorneys and getting their opinion. Most of us can't afford an attorney to help us fight the IRS if they decide to come after us for this kind of stuff. Attorney's just love to tell you how they've helped someone win against the IRS. Advice can be free from those guys, help against the IRS won't be.

The IRS has unlimited power and does not have to follow due process to start taking your money. Yes, you can get an attorney and fight them. Most of us don't have the funds to bring in an attorney to fight the IRS.

I'm just a big fan of employees for the every day stuff that your business does. I feel you can build a better product with your own people.

Sub out the stuff your business doesn't specialize in.


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## Leo G (May 12, 2005)

SolutionsbySull said:


> I heard that State Tax departments have different testing criteria than the FEds and you can win on one level and not on the other. For instance in one Example a 1099 was voided since the "contractor" who set his own hours did not have a phone book ad and could n't be considered a legit business.


I don't have a phone ad or listing. I never will. I don't want strangers using my business, I do a referral only business. I do however have a landline in my business name and a cell phone in my business name. I can't see how thins can be relevant. What if you only have a web page as a client business contact. Are you not considered a business?


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## JumboJack (Aug 14, 2007)

Leo G said:


> I don't have a phone ad or listing. I never will. I don't want strangers using my business, I do a referral only business. I do however have a landline in my business name and a cell phone in my business name. I can't see how thins can be relevant. What if you only have a web page as a client business contact. Are you not considered a business?


I agree.The phone Book thing is ridiculous.Fewer and fewer people are advertising in the phone book nowadays.

It really is pretty easy to know if someone is an employee or a sub.It's just that some people will try and rationalize 1099'ing everyone that works for them regardless of the reality of things.


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## RH-Electric (Jan 16, 2010)

In California, unless you have a valid, active contractors license, you are an employee. The only exception would be workers from a temp agency.


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## flashheatingand (May 3, 2008)

dayexco said:


> oh, i get it...by your line of thinking, i just go next door to my neighbors and steal whatever i've neglected to provide for myself...hey, good plan!!!


Yeah, I think its ok to steal from your neighbor:whistling. I am just saying if you don't want to pay workmans comp, taxes, social security...etc, don't take on jobs that require more than yourself. Otherwise pay the bill and don't be a cheap skate.


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## flashheatingand (May 3, 2008)

Leo, not everybody can pull their own weight. Some people are stronger, smarter, quicker...etc than others. So, we have to deal with that. Some can't even afford to eat what are we supposed to do? If they can't pay rent, then what.

Obviously,there are lazy bums as well, but how can we differentiate? It is better to err on the side of compassion.

Just explaining the way I sees it.


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## Tom Struble (Mar 2, 2007)

damn democrats


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## Tom Struble (Mar 2, 2007)

flash heating and said:


> That's why unions were formed. That's why social security was created. You can't have a society in which everybody pays for their own s__t.
> 
> It simply doesn't work. These are tough times, but going 1099 on the help is not the answer.


 
no i mean everybody,the whole freakin country
pay your own taxes pay your own ss,get your own health ins...who are you to say it won't work?some kind of finance wizard


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## Leo G (May 12, 2005)

flashheatingand said:


> Leo, not everybody can pull their own weight. Some people are stronger, smarter, quicker...etc than others. So, we have to deal with that. Some can't even afford to eat what are we supposed to do? If they can't pay rent, then what.
> 
> Obviously,there are lazy bums as well, but how can we differentiate? It is better to err on the side of compassion.
> 
> Just explaining the way I sees it.


You choose to be lazy and not to pull your own weight. There is always something you are good at, good enough to make a living at. If you don't want to pull your own weight you can be helped by different groups, churches, family, friends. Keep out of my paycheck.

If you have a physical or mental disability you are excused. Otherwise get your azz to work.


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## flashheatingand (May 3, 2008)

Yes, there is a small portion of your check going towards the "lazy". I don't know the percentage of lazy bums that are receiving aide, and that is an institutional issue. The thing about everybody has an employable talent, well, I don't know about that, but that is another topic.

Going 1099 on a guy is just an excuse to get away with not paying somebodies workmans comp, and other taxes. These simply are the cost of doing business. If you don't want to have employees, only take on jobs that incorporate your own labor, nobody else. If one needs other guys, don't look for loop-holes, pay the taxes and bill accordingly. 

I think this post is about how to get away with paying taxes. I believe all of us know when a guy is our employee or a sub, that's not rocket science.


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## flashheatingand (May 3, 2008)

tomstruble said:


> no i mean everybody,the whole freakin country
> pay your own taxes pay your own ss,get your own health ins...who are you to say it won't work?some kind of finance wizard


Finance wizard, no. But, I do fancy myself somewhat of a U.S. History buff. There was a time in which everybody had to pay their own way for everything. It didn't work, welfare was created, ss was enacted, minimum wages and o.t. was created. 

I do understand how it can be frustrating to see some people watching t.v. and smoking cigarettes all day while we are busting our butts just to get by. But as a society, we need a welfare system. How to implement it, well I admit, I am not a procedural wizard.


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## Anti-wingnut (Mar 12, 2009)

RH-Electric said:


> In California, unless you have a valid, active contractors license, you are an employee. The only exception would be workers from a temp agency.


Who are employees of the temporary agency.


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## jmiller (May 14, 2010)

theo4312 said:


> every contractor I have talked with 1099's their employees. Am I not aware of a new law or loop hole that allows this?


Beyond the IRS, there are also the insurance companies to deal with. In our business they want to see liability certificates for the subs (and they couldn't care less that you did/didn't direct the work etc.), or _you_ pay the liability on their 1099 amount.


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## 1OFKND (Aug 22, 2010)

What was the last thing that someone did for us? The Business owners? Other then pay TAX and pay for other people responsibilities
Why everybody keep adding more things to our list of responsibilities and making our life so much harder?
We are generating jobs for people that can not do it themselves, we are helping them to put food on their table.
When was the last time that we have been rewarded for that effort, for all that stress, for our everyday fight to get jobs closed.
It seems to me that people got so stupid that they are helping the individuals who are weak by killing the strong ones.
Just keep in mind....without us the people who actually fight to do something with our life, everybody will be doomed anyway


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## Leo G (May 12, 2005)

That's why we get the big money and that is why the government comes after us...they know where the money is.


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## Jaf (May 10, 2010)

I've noticed a certain pattern this summer.

Three of the jobs I did, where for unemployed people collecting checks from the government, and working under the table. Two of the three where working at different liquor stores for cash. I'm a good chatter with customers, and I always asked how their job searches where going. All three of them where actively looking for jobs that would agree to pay cash, so that they could keep collecting unemployment, and keep their state insurance plan. 

And they can afford to have people working on their houses? Trust me, they all had great summers. Time and money to burn.

When too many people take advantage of the system. It gets harder and harder to want to support the system.


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## Leo G (May 12, 2005)

First thought that comes to my mind

Prosecuted to the fullest extent of the law.

But that would just mean my tax dollars no paying for them to be shackled up with 3 squares and a cot.


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## IanS (Sep 18, 2009)

I struggled at first trying to understand the 1099 Sub and employee thing.
Honestly it is still a bit murky and it is the Government contract employees that make me wonder.
For my business though a sub has to have his own Company and workers comp (or exemption) and liability. Simple. Otherwise I run them through a payroll or labor company.

Now to the you pay for yours and I pay for mine. This line of thinking where I need to pay for someone else is baffling. Because they don't have the faculty or ability or speed? Please. Were they paying attention in school or doing homework? It is a natural selection thing, don't fight it.

There are 2 camps of thought on this and always will be. Here is the solution. If YOU want to pay for THEM then go ahead. If YOU want ME to pay, ask. I will, if I agree. Otherwise stay out of MY wallet.

The rules as they are written now will only create more of the same until we get to a breaking point. Looking at the data it is obvious there are more in need than there were before (Say 30 years ago). Simple math: We are on the wrong solution to the problem because it is getting bigger.


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## JamesDibben (Apr 5, 2010)

We have a disabled friend that worked into her forties. Now she just can't anymore and she gets government disability. 

I don't mind helping the helpless. I just don't want to help the clueless.


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## Gough (May 1, 2010)

I'm late to this discussion, which seems to have wandered from the original question and turned into a philosphical/political debate on the system as it now exists. To answer the original poster's question: if they are your employees, handle them like employees: W-2, W/C, the works. If the system changes, which I think is unlikely, you can change how you handle them, but as the laws stand now, you're courting financial disaster. My BIL is a masonry ontractor and treated his employees as subs. About 15 years ago the IRS caught up with him and he owes them back taxes and fines into the mid six figures. Since then, he's had to operate without a bank account and without any assets the the IRS could attach. Trust me, that's no way to operate.


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## flashheatingand (May 3, 2008)

The original question was in regards to the employee 1099 classification. How to determine status if pretty much straightforward. What grabbed my eye was comment that almost everybody he knew were going 1099 with their guys. To me that is alarming. Alarming becuase the 1099 thing is like contracting w/o insurance. It's Russian Roulette on our dollar and, it's alarming to see how many people try to take advantage of the system. Both employers and employees. As a contractor / employer, I understand all of the frustrations that are too numerous to list. 

All the banter to what's right, well, I hate to sound hippie, but, "the anwer is blowing in the wind". Just passing time with other guys who visit this site regularly.


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## Leo G (May 12, 2005)

If you collect the insurance and WC papers at the beginning of each job then it is fine. There is nothing wrong with a 1099.


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## Gough (May 1, 2010)

Leo G said:


> If you collect the insurance and WC papers at the beginning of each job then it is fine. There is nothing wrong with a 1099.


I'm on a remote job with SLOW dialup access for a while, so I can't check the IRS website, but I think they may look at it differently. I haven't looked it up for a while, but they used to have a fairly detailed checklist to determine what people are employees and what people are sub-contractors. 

C/T is a great source of advice, but I'd check with your local department of employment, your insurance carrier, and the IRS. As I posted yesterday, screwing this one up can be costly.


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## Leo G (May 12, 2005)

Of course you need to follow the IRS guidelines to who is not an employee. I assumed that was a given if you are collecting their info as a sub.


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## JumboJack (Aug 14, 2007)

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html


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## JamesDibben (Apr 5, 2010)

IRS said:


> 1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
> 2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
> 3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?


Shoot, I own my own company and now I can't tell what I am! My customers seem to dictate that list to me pretty well. :cheesygri


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## flashheatingand (May 3, 2008)

Leo G said:


> If you collect the insurance and WC papers at the beginning of each job then it is fine. There is nothing wrong with a 1099.


I agree, it's those who try to bypass the whole w.c. and ss. thing that I disagree with.


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