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A question about employment law

Apparently the company I work for does not have any employees aside from the owners. As far as taxes are concerned, everyone is an independent contractor. This means that they do not have to pay for benefits, unemployment insurance or worker's compensation. We "employees" obviously get the raw deal here, but I am wondering if operating a company like this is even legal. One person I talked to said that it is legal, but only if there is no "must work on-site" requirement, which there is. It sounds highly unethical (not a stretch for this company) but JUST legal enough. I would like to know if the company I am working for is operating above ground or not.

Best way to find out IMHO is check with your state labor board. Things vary so much from state to state it isn't even funny.

in australia we have similar setups for similar purposes. in australia it is legal.

the 'employees' like yourself would work for the employer, and invoice the company each month accordingly.

the catch here, is the definition of what IS a contractor, and what is an employee? the definition in the australian setting is that someone who provides their own tools and is not bound to take orders from the employer is consdired to be a contractor. an empoyee does not have to provide his own tools, is bound to take orders and is bound to take orders from the employer.

the other important aspect of this rule in australia is the 70/30 rule. if you are in fact a contractor but you earn more than 70% of your income from the one source, then you are also classified as an employee. In this case, the company will then need to cover all your benefits, insurance etc. thus enabling the contractor to either take more work outside the company (as a real contractor would) or coming into the fold of the company (which isnt in the best interest of the company because they'd want to save money).

sorry i dont know anything about the US setting. just something to think about though

The person you talked to is probably correct. I've worked as an independent contractor a number of times, but it has always been work that I can do pretty much anywhere.

You should check in your state, but in principle it sounds entirely legal. I worked as a contractor for Wachovia for eight months, and used their equipment on their property, as do thousands of other contractors they employ. Literally the only difference (beyond cultural differences--regular employees are "clubbish" in a way that can sometimes exclude contractors) is how they get paid.

I dont know about NY, but I know here in GA lots of companies operate that way..both my company and Daves company employ "1099's" and we are not required to provide benefits in anyway for them

It is entirely legal, and my understanding is that it doesn't matter where you work or not. The employer is supposed to provide extra compensation for the taxes you're going to have to pay as well as the benefits you're missing.

In my business life, I see lots of companies that do business like this, and it's a perfectly ethical way for a small business to operate. When I owed the fencing club, all of our coaches were 1099 employees, but that was because we couldn't have afforded to operate any other way. It wasn't that we didn't want to pay unemployment, WC, etc., but those additional costs would have sunk the company. However, if it's a larger business, like Wachovia, it's really not, in my book. If you were actually building something physically (like a building or a product), then I'd say that it was dangerous to the company as well, but in this case, that's not as much of a concern.

One thing that you should know is that if you get injured at work, you're going to have to file a general liability claim against them. New York is notoriously worker-friendly on that front (at least at this writing), so keep that in mind if something happens.

As stated already it is perfectly legal. There are many reasons to do this from stop gap measure for unionizing (can't unionize if you don't have any employees) to saving in overhead for small business owners.

The key to knowing what the differences are really a defined by the IRS. The three items Behavioral, Financal, Type of relationship are the important tests to understand the differences.

Quote:

Independent Contractor (Self-Employed) or Employee?

Independent Contractor (Self-Employed) or Employee?

It is critical that you, the business owner, correctly determine whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors. If you are an independent contractor and hire or subcontract work to others, you will want to review the information in this section to determine whether individuals you hire are independent contractors (subcontractors) or employees.
Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be -

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

Common Law Rules
Facts that provide evidence of the degree of control and independence fall into three categories:

Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
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.)
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?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.
The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

Quote:

Independent Contractor

People such as lawyers, contractors, subcontractors and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. However, whether such people are employees or independent contractors depends on the facts in each case.

The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.

Example: Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. She is to receive $1,280 every 2 weeks for the next 10 weeks. This is not considered payment by the hour. Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. She also performs additional electrical installations under contracts with other companies that she obtained through advertisements. Vera is an independent contractor.

Employee (Common-Law Employee)

Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.

Example: Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. She works 6 days a week, and is on duty in Bob's showroom on certain assigned days and times. She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Lists of prospective customers belong to the dealer. She has to develop leads and report results to the sales manager. Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. She is paid a commission and is eligible for prizes and bonuses offered by Bob. Bob also pays the cost of health insurance and group-term life insurance for Donna. Donna is an employee of Bob Blue.

I will suggest that if you are an independent contractor you make sure you save the money to pay the taxes. It is an important thing that most people figure they can get away with or get to later. Sometimes the later is tens of thousands of dollars down the road and that's a painful check to write.

MTV is a notorious freelancer work environment, there's even a coined term called permalancer.

One could assume, however, that said "lancer" could do freelance work for other companies simultaneously, right?

yes and it does happen, but usually production hours are 10-15 hour days making it near impossible to get a 2nd gig without wanting to kill yourself.

According to Cyn's article:
If I am required to work from the office, then I am an employee?
If I am allowed to do my work however I please, I am independent contractor?

If I am thus an Employee, is the company doing something wrong by paying me as an independent contractor?

The factors aren't as simple as answering those 2 questions. There are the 20 of them that are to be considered and it again isn't as cut and dry as one would like.

http://img.photobucket.com/albums/v1...q/01230492.gif
http://office.microsoft.com/en-us/te...304921033.aspx

This comes from an excel checklist from Microsoft. If anyone knows the ins and outs of Independent Contractor vs. Employee it is Microsoft since they were taken to court over this very issue.

Employee or Independent Contractor? The Implications of Microsoft III

While the company may be doing something "wrong" or "potentially illegal" the tort is not necessarily against you but against the IRS first, after that it's potentially you, IF they were to have paid you as an employee.

I'd say that there's lots of businesses that do things "wrong" from hire undocumented workers to paying people as independent contractors instead of employees. The real question is if you decide that what they are doing is wrong, what happens next?

If you get a 1099, you're responsible for your own self-employment taxes IN ADDITION to the "employee" portion of the income tax, which is a BIG lot of money. We're talking about probably another 20-30% of your gross here. If that isn't figured into your salary, then you're getting hosed. And if you're not putting that much aside from each paycheck, you're hosing yourself.

If you get a W-2, they're paying those taxes for you, and you are only on the hook for your own portion of your income taxes.

I've never known it to matter "where" you work, all our 1099's work in the office

Quote:

Originally Posted by ShaniFaye (Post 2670948)

I've never known it to matter "where" you work, all our 1099's work in the office

Ditto that.

Cynthetiq is pretty much right. The real test is to check with the state for a final determination. That won't cost you anything.