1099 or W2?

[bensurdi]

Each month that I see my billing statement for payroll tax I nearly puke! This got me thinking...

Previously I worked in the mortgage industry and was always a 1099 employee. I came to work each day, sat in my office, did my job and went home.

It got me thinking of how every mortgage company I worked for was able to make me a 1099 even though I came to that one job each day and did not sub contract for any other company... I was paid 100% commission.

So... Question is, does paying someone 100% commission allow you to pay them as a 1099 employee?

I've emailed my CPA about this but curious how everyone else has there technicians setup?

I know the typical rule is that if they drive your truck, use your tools, use your products, wear your uniform etc etc than they have to be a W-2 employee. BUT, the mortgage industry must know of some loophole or something because I used their phones, computers, printers, etc and was still a 1099 employee.

By setting employees up as 1099 subs it would save A LOT of money each year - thats for sure!

 

[SMRBAP]

Unless you answered no to 95% of 1-17 - your mortgage co.'s wrongly classified you.

1. Must the individual take instructions from your management staff regarding when, where, and how work is to be done?
2. Does the individual receive training from your company?
3. Is the success or continuation of your business somewhat dependent on the type of service provided by the individual?
4. Must the individual personally perform the contracted services?
5. Have you hired, supervised, or paid individuals to assist the worker in completing the project stated in the contract?
6. Is there a continuing relationship between your company and the individual?
7. Must the individual work set hours?
8. Is the individual required to work full time at your company?
9. Is the work performed on company premises?
10. Is the individual required to follow a set sequence or routine in the performance of his work?
11. Must the individual give you reports regarding his/her work?
12. Is the individual paid by the hour, week, or month?
13. Do you reimburse the individual for business/travel expenses?
14. Do you supply the individual with needed tools or materials?
15. Have you made a significant investment in facilities used by the individual to perform services?
16. Is the individual free from suffering a loss or realizing a profit based on his work?
17. Does the individual only perform services for your company?
18. Does the individual limit the availability of his services to the general public?
19. Do you have the right to discharge the individual?
20. May the individual terminate his services at any time?

 

[Shane Deubell]

We take way more risk then a guy sitting in a cubicle, people misuse worker comp,disability,unemployment for sure but it also protects us. We have employees driving all over the place pretty easy for these guys to get hurt.

 

[juniorc82]

Dude don't even think for a minute about doing a 1099 unless they are a legitimate private contractor with a business license and their own liability insurance. My cpa has warned me that if you use that loophole for long enough you will get caught and you will pay the back payroll taxes you owe plus a penalty. If you want to save some money what I did was pay all my help through a staffing agency which charges me 35% above the employees hourly wage. Then their taxes are withheald and they are covered under the workers comp through the temp service not yours which will make your rates go down. Also if they go through the temp service it is a lot easier to get rid of someone and also avoid dealing with problems regarding unemeployement clains. It has worked well for us. Between the time prepairing payroll and the money saved in insurance it has been a winner for us. The guys don't seem to mind getting paid through them, I just tell them it saves me time and it covers them with work comp if they get hurt.

 

[Lonny]

Ben, I feel for you. Washington sucks the very soul from business owners. My cousin has a framing company there. At least you aren't in California. I hear the insurances about kill em there.

 

[knoxclean]

Jon by staffing agency do you mean a P E O? I used to use them but they kept dropping me because it wasn't worth it to them because my payroll was so small. Most wanted a payroll of at least $150,000

 

[juniorc82]

Jon by staffing agency do you mean a P E O? I used to use them but they kept dropping me because it wasn't worth it to them because my payroll was so small. Most wanted a payroll of at least $150,000

No I mean a temporary agency or staffing agency. They allow you to recruit your own people and they really simplify everything. I don't have to spend any time at the desk prepairing payroll or mailing in payroll tax to the state. plus I have had a few problem childs along the way which made it easier for me to move them alng when things don't work out

 

[Papa John]

What I'm about to share with you comes from experience. It is nearly impossible for a CC company to avoid W-2s by having 1099s. The risk is just too great-- you could be held responsible for taxes Not paid by 1099s as well as other financial risks.
If the costs of running your business legitimately are too high-- THEN you need to raise your prices or get out.

My "experience" comes from a complete "pull your pants down and bend over" inspection/audit by the IRS And Insurance companies. When I originally received the Audit notice from IRS I worried that soon I would become the unwanted love interest of "Bubba" in an 8x10 cell.
I decided to take the Humble approach and not hire a lawyer and Not be argumentative. I told the Auditor that I'd rather give the money to the IRS instead of a lawyer. This proved Wise in the end.
The Auditor simple informed me that she was here to "Educate" me... And that "Big Brother" is watching everyone.

 

[AJR]

Albert DeFrancesco adefrancesco@worklifehr.com Account Executive
904-334-4942 WorkLife Best decision I ever made. Comp, all payroll taxes, unemployment etc... just send in hours and its done. cost about $14 per employee per pay period. oh also get short and long term disability ins plus life ins for your guys for about $ 10-20 per month.

 

[dealtimeman]

So what ended up happening?

Where you fined?

 

[Papa John]

I assume you are asking me if I was fined, since I mentioned an IRS audit.

I had to pay about $24k in back taxes and bend over fees. But that was for 3 years of back taxes ADJUSTMENTS. And The Auditor/IRS forgave a lot of stuff because she didn't have to deal with an SOB lawyer so she passed the "savings" on to me.

 

[Desk Jockey]

I thought the rule was that to be classified as a sub they couldn't work more than 50% of the time or you. ???

 

[dealtimeman]

So you still made out like a bandit?

How much would you of had to pay if you would of done it the "right way" from the beginning?

Was it your fault or your CPAs fault that all this misclassification of sub or employee, happened?

I ask these questions to help myself and other on here.

 

[bensurdi]

Seriously- it seems like even if you did have an audit... You wouldn't lose anything- you'd just have to pay what you would have all ready paid if they were a w-2.

 

[juniorc82]

Seriously- it seems like even if you did have an audit... You wouldn't lose anything- you'd just have to pay what you would have all ready paid if they were a w-2.

Seriously man? Why would you even risk it? I wouldn't even take a chance being on the irs radar. Most of the time if I over pay on my taxes I just put that towards the next year. Once they get a hold of you can bet on getting another audit sometime in the future. Dude this post is puzzling to me... You have top notch equipment and trucks most would drool over, you have a super clean image and marketing , so why exactly are you entertaining this slimeball approach to saving a few dollars? There is no reason on earth for you to be sporting a 60k truck and doing some funny type 1099 stuff. If the irs don't get you I bet the unemployement burea will because eventualy an employee will attempt to file for unemployement and expose the circus that's going on

 

[joey895]

I have no idea about any of this stuff but seems to me Greg Cole would be the one to ask if he'll divulge his secrets. I'm pretty sure I read on here he pays his guys as subcontractors and has for years and has survived the government audits.

 

[Papa John]

Please--- Listen to Papa
-- everyone who has questions about this issue-- READ THE REPLY POSTED BY INDYALLPRO... he worded it very well.

I need to clarify-- The fines/ back taxes in paid after the audit was NOT for employment taxes. I was always was above the law with that regard. But the auditor did discuss it with me.
Its important to note that after the IRS audit, I also got audited for the same employment issues we are talking about here by BOTH: the State of California, Worker's comp Insurance board. These audits only took about 10 minutes cuz everything was kosher...
after the Worker's comp auditor was done with the audit and interview with me she remarked: "Finally!!! a business owner WHO GETS IT!-- regarding the 1099 vs W-2 test.

Americans! you must understand that the "Ruling Class" would rather have the government squeeze more money out of the shrinking middle class and the poor then to have the multimillionaires pay more then 18% income tax.-- before Reagan they paid 75-90%.. That too is unfair. but 18% for wealthy and 35% for middle class is also unfair.- WAKE UP USA.

 

[Shane Deubell]

Seriously- it seems like even if you did have an audit... You wouldn't lose anything- you'd just have to pay what you would have all ready paid if they were a w-2.

NOOOOOOO!!!!!!!

You have to pay back the money owed PLUS fines/interest going back 3 years and if they find something 7 years.
We have had 2 state labor audits and the penalty was greater then money owed, over $1k for a dozen hand written bonuses. Its not the IRS you have to worry about its the State labor dept/worker comp board.

If you want to be a big boy then its time to stop playing games and trying to outsmart people all the time.

PS. Do not use greg as an example, he has spent $100's of thousands on lawyers and business infrastructure to back up his business plan. Far more complicated then just calling someone a sub, lol.

Talk to a Labor Attorney....

 

[joey895]

NOOOOOOO!!!!!!!

You have to pay back the money owed PLUS fines/interest going back 3 years and if they find something 7 years.
We have had 2 state labor audits and the penalty was greater then money owed, over $1k for a dozen hand written bonuses. Its not the IRS you have to worry about its the State labor dept/worker comp board.

If you want to be a big boy then its time to stop playing games and trying to outsmart people all the time.

PS. Do not use greg as an example, he has spent $100's of thousands on lawyers and business infrastructure to back up his business plan. Far more complicated then just calling someone a sub, lol.

Talk to a Labor Attorney....

I agree on Greg, I certainly didn't mean to imply someone should just do it because he does it. I only meant he probably has more insight on this issue than anyone else here because he's paid the lawyers.

I seriously doubt he would be willing to share that info though. I think his ability to skirt up next to the labor law lines without crossing them is one of his competitive advantages.

Sent from my Galaxy Nexus using Tapatalk 2

 

[Shane Deubell]

I agree on Greg, I certainly didn't mean to imply someone should just do it because he does it. I only meant he probably has more insight on this issue than anyone else here because he's paid the lawyers.

I seriously doubt he would be willing to share that info though. I think his ability to skirt up next to the labor law lines without crossing them is one of his competitive advantages.

Sent from my Galaxy Nexus using Tapatalk 2

Oh I know you understand joey, my comment was directed at ben. He is taking a cavalier attitude to a subject that is really serious.
This is one of the 7 deadly sins of small business, you can NEVER bankrupt out of debt from the govt. Owe this money forever and a public judgement will destroy your credit rating for a very long time.

 

[dealtimeman]

Pmitap?

 

[FredC]

lol...I thought better of it and deleted...google can help you

 

[bensurdi]

No I get it. There's no way around the tax crap. I do it all legit but I wish there was a better way!

 

[Desk Jockey]

We all do.

It often seems that we are in business just to pay taxes and insurance.

 

[Shane Deubell]

This is just the beginning ben, your insurance cost is NOT fixed. More payroll, more revenue = more cost. The best is when you grow and you owe them money from last years coverage . $5k for something that already happened....

Wait until someone collects unemployment !
And you owe money.

 

[renegade_cowboy]

You said you are doing around 100K a MONTH now on another BB, so you should have some cash saved up to pay business expenses.

 

[Greg Cole]

John, you forget that the 18% is investment money not earnings from wage or transactional business. A good tax attorney will steer you in the right direction to keep you payout manageable. Be sure to form as a S corp. The real crime is the fact that we have to match the ss earnings for my salary as well as every employee I have as a w-2.

Please--- Listen to Papa
-- everyone who has questions about this issue-- READ THE REPLY POSTED BY INDYALLPRO... he worded it very well.

I need to clarify-- The fines/ back taxes in paid after the audit was NOT for employment taxes. I was always was above the law with that regard. But the auditor did discuss it with me.
Its important to note that after the IRS audit, I also got audited for the same employment issues we are talking about here by BOTH: the State of California, Worker's comp Insurance board. These audits only took about 10 minutes cuz everything was kosher...
after the Worker's comp auditor was done with the audit and interview with me she remarked: "Finally!!! a business owner WHO GETS IT!-- regarding the 1099 vs W-2 test.

Americans! you must understand that the "Ruling Class" would rather have the government squeeze more money out of the shrinking middle class and the poor then to have the multimillionaires pay more then 18% income tax.-- before Reagan they paid 75-90%.. That too is unfair. but 18% for wealthy and 35% for middle class is also unfair.- WAKE UP USA.

 

[bensurdi]

Agreed Greg.

 

[John Olson]

Employee leasing! We use A Plus Benefits. We have 3 full time employees and 2 part time now. We have insurance on the guys and they can insure their families and have dental. We also have a 401K plan run through Transamerica. We pay 3% over our payroll and they take care of EVERYTHING. Superior doesn't have any employee's we are all employed by A Plus even me and Lora. There are lots out there but this is the one we use and have since we opened. Call around and see what is available in your area. Most only require 3-4 employees with 3 min on insurance to offer it. Why me and Lora each have our own insurance instead of one family plan. Don't have to worry about the labor board as no one is employed by superior. Lora corrected me we pay 3%

 

[dealtimeman]

Remind me about his next time we talk, would like to get more info.