Independant contractor vs employee

[Washington]

I am a pilot flying a DHC-6 Twin Otter for a skydiving operation. I have worked for them for about a year. They do not fly during the winter and, because of that I get no $ during the winter.

They classify me as an independant contractor.

After doing some research, I have found that I probably am misclassified, and should be an actual employee. They direct how I am to do my job, they provide all equipment (ie, a million dollar plane), and tell me what power settings to run, provide annual reccurent training, etc.


They are very good nice people and are my friends. I have known them and their friends for much longer than a year.


The Owner has asked me if I would like to be re classifided as an employee.

They asked me this because their fellow dropzone owner friends said that they classify their pilots as employees, and the pilots then simply collect unemployment benefits all winter.

Easy money always sounds good but there is always a catch.




What is most advantagous for me? Should I ask them to reclassify me as an employee? What are the beneifits/cons of this?

I know that as an employee, id have to have taxes witheld all year, but as an IC i have to pay them at the end of the year anyway.

If I'm an employee are they required to provide health benefits?

What is better for me from a monentary standpoint?

Would appreciate any guidance.

Thanks


PS, The job is in michgian. The max unemployment benefits is about 300 per week for i think about 26 weeks. The job pays me an average of 500/ week during the summer months. I am guarenteed at least this much per week during the summer. But i get nothing during the winter.

[Washington]

I guess what im asking is

Is the ability to get a small sum of money per week all winter long, worth the tradoff of having money withheld from each paycheck. I have thousands of dollars of CC debt (from school tuition) that should be paid of sooner rather than later..having more money in each paycheck would help.

Plus, correct me if im wrong, but as an IC I have more leeway on what I can deduct...ie fuel to get the dropzone, and other expenses.


Does collecting unemployment have a stigma when applying to new jobs?

[Elphaba]

Washington, as an IC you are also paying your employer's half of Social Security and Medicare, which is twice what you would pay as an employee. As you have stated, you are not collecting benefit hours for unemployment, but also consider that you are not covered for workman's comp in the case of an injury that an employee is entitled to. Work expenses not reimbursed by your employer continue to be tax deductible as an employee. Lastly, I am not aware of any means for a future employer to know that you have collected on employment security or workman's comp.

Your current employer is encouraging you to do this because they have learned that you have been misclassified. The status of IC's has been murky for awhile, so I believe that they are correctly changing your employee status due to greater clarity on this issue. I don't see a catch of any kind, unless they are hoping to preempt a claim for not properly classifying you to begin with. From the way you describe these people, I doubt that is the case.

Caution: I'm just a small business owner who sits worshipfully at the feet of my CPA.

[alpha phi]

When I worked as a roofer I started as an IC
The boss changed us to employees
after several of my coworkers got in tax troubles
no savings and discovering they owed a few thousand dollars
the overall money difference is very little,
(less per week.....but a tax refund instead of a bill)
while the piece of mind is great.
Unemployment is not all that great
seldom will you get the maximum
You loose benifits if you go to school
or get a parttime job.
The last time I had a layoff
the unemployement office wanted
me to jump through so many hoops
I refused to collect it anymore.

[The_Jazz]

I have a small side business that is going through this right now. We had one employee who absolutely refused to be switched to an employee because he thought that it would cost him extra taxes. We straightened him out and everyone's happy. There isn't much of a down side for you as long as your employer is doing what they are supposed to.

[Rodney]

Even when you are a direct employee, your employer is not required to give you health insurance in the U.S. Most jobs that pay more than a certain amount offer health insurance, but not all do -- especially if the work is seasonal.

Take permanent employment. Your friends are doing the right thing. You'll pay fewer taxes yourself, you'll get unemployment and worker's comp, and so on. You need to find out, though, if your employer will want to lower your pay if you go regular; since he'll be paying taxes for you, his share of worker's comp for you, and so on, his costs for employing you go up. But if it all works out even based on what you get from unemployment and such, or even just almost even, I'd say, go for it. The worker's comp coverage is really worth something.

[splck]

I contracted for 18 years and for me, it was the way to go. I'm now an employee doing the same job and I pay way more taxes while making less money, have less freedom to come and go when I want.
I'd stick with being a contractor and start looking for some flying jobs during the winter.

[Washington]

Thanks for your relplies. I appreciate your time.


I am applying to the Air National Guard for a pilot slot. The unit that I really want to work for specificly asks if the applicant has ever recieved unemployment or workers comp benefits. I think they are trying to ascertain if you are someone who wants something for nothing. Cant say I agree with it, but it is on the application.

Lying is out of the question, both because of my own personal morals, and because if they ever found out I lied it would be the end of me.

That, combined with the fact that unemployment really doesnt pay that well, leads me to conclude that I would not try to get it even if I could apply.

So, if we take that out of the equation all I have left is the workers comp and and the tax issue.

Workers comp I suppose might come in handy...you never know when you might fall and break your neck or something.

That, in itself though isnt enough to make me want to reclassify. But, the tax issue is interesting. I make about 20K by working April 1st -October 1st. I wonder how much the social benefit tax that the employer would have to pay would really help me? 20K isnt that much to tax. I'll have to find out if they plan on changing my pay. That is an important factor.

The other factor is my debt. I am paying tons! of interest on my CC and some interest for my student loans. My AMEX card is 29.99 APR..I paid 100 dollars in interest last month alone.

Having more moeny each week that would enable me to pay of my debt sooner would probably pay better in the long run than trying to get a small social benefit tax paid by my employer by reclassifing as an employee.

Thoughts?

Ill ask about the pay thing and get back to you.


Thanks again.

[wayne21]

Hi,

I am Wayne21's wife not him, but I am also an accountant.
I would need more information to determine if you should be an IC or an employee.

1. If you are writing off a lot of your living expenses, because of having a home office then you are probably better off being an IC....but if you are not writing off many expenses you would be better off being an employee.

2. The IRS does not really give you a choice though. If the company is telling you when, where and how to do a job then you are an employee.

3. An IC decides when and where they are going to work, and it does not sound like you are being given this choice, but maybe you are. An example of an IC pilot would be if I told you that I wanted a package flown to Brazil and it had to be there by Thursday. You use my plane, but choose when to leave as long as you get it there by Thursday.

4. As an employee I would tell you that you had to leave on my schedule.

5. As an IC you are paying double your Medicaire and Social Security tax which translates to you are paying 15.3% instead of 7.65% of every dollar you earn

6. As for Income Tax being withheld from your check, you can adjust your W-4 to where nothing or very little comes out. I can't tell you how to do that here though. Just remember that with each dependent/exemption you put on your W-4 the less withholding they take out.

7. You need to consider the Workers Comp insurance. Almost all applicants are asked about that. If you are actually hurt and draw WCI it is not held against you, but if you ever sue they do look at that closely.

8. You seem to be strapped for cash, and if you get hurt without WCI you are really going to be in a mess. WCI is designed to pay your medical cost, and a portion of your lost wages in the event you are injured on the job through no fault of your own.

9. Planes do breakdown and it is a rough landing when they do it in the air, so strongly consider being insured if it ever happens.

I hope this helps,

Robbi

[Washington]

Robbi,

Thanks for the message.


Insurance is a good thing, but here is the thing..


They wrote back and told me that if they were to classify me as an employee, they would change my pay to a flat fee per week. This would be much less than what I would make if I were an IC.

The flat fee would be 550 per week. Currently I make 100 dollars per day plus 10 dollars extra per load over 10 loads. (so if I flew 21 loads, I would get an extra 110 bucks). I can easily fly 20 or more loads per weekend day, so you can see how I can make an extra 200 or 250 dollars per week with this. A flat fee of 550 does not sound good.

I dont have a specific show up time except they open for business at noon on weekdays and 8am on weekends and I need to be there and have the plane ready before that, and they said that they would "like" me to be there 30 min before that time...so i guess I do have a show up time.

I think that technically I should be an employee, but I dont want my pay to be lower....