employer trying to label me as independent contractor

Hi all,

Started a new job 3 weeks ago after signing nothing. Professional capacity (obviously not CPA), paid with a company check - no withholdings. Asked, was told IK.

This is my first time being hired in a professional capacity - just got my licenses. Replied to job posting offering "xyz salary, non negotiable - no experience necessary, we will train" and interviewed, was offered, accepted. Lots of on-the-job training. All company supplies, computers, etc.; I didn't provide anything. Was told when to report in to work but not when to leave, some files require attention until 4pm, others until 10pm, and in the end I average about

55 hours a week.

I feel very much like I am being screwed, that I am an employee based on the factors on the IRS website regarding emp vs IK, and that the high turnover at this company is due to shenanigans like this.

I don't want to have to leave, I don't have enough experience to go any place else. I don't think I can say "hey, I am actually an employee, start paying my employment taxes!" and I really don't know how I can afford to live on this salary considering it's pre-tax instead of after-tax like at every other job. FML.

Any thoughts / guidance / advice / help, please?

Reply to
c b
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you feel you need to, and don't rock the boat. Keep track of all your expenses and file a Schedule C in the mean time. And keep track of all the hours you work.

Then plan to leave as soon as you reasonably can, whether it's a year or two or more.

After you leave, file form SS-8 with the IRS, to have them determine you were an employee. At the same time take the company to the state labor commission or sue in court to get paid back for the company's portion of taxes you paid and any hours you should have been paid for but weren't.

If you start causing trouble now, they would likely fire you. You could sue, but it would be a much more difficult case than sueing for back wages due to misclassification. ___ Stu

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Reply to
Stuart A. Bronstein

Thank you, Stu. Your advice has the right mix of practical and emotional (mild revenge for being screwed). I'm trying to determine what I need to be withholding (25% at least?).

What's the best way to learn of deductibles, hiring an accountant or is there a simpler (checklist-style) resource? I understand I have to be able to prove expenses, but am not sure what I can claim.

-c

Reply to
c b

I've been around a long time and have never seen a salary stated in after-tax numbers, be it employee or independent contractor. Take-home for an employee is going to be less than the stated salary.

Stu gave you excellent advice. As for your followup questions, see IRS Publication 334 on the subject of expenses. Independent contractors are "running a business" even though you don't think of it as such.

See Form 1040ES for help in calculating how much you need to set aside for taxes. You'll also need to make estimated tax payments. More info in Pub 505. For those payments I highly recommend

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It takes some time to establish your account there, so don't wait until the last minute.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

Reply to
Phil Marti

Since you're being treated as a contractor you will have to make quarterly estimated income tax deposits. The first one is due on April

  1. If you net ,000 on this job, are single with no dependents, do not itemize, and do not qualify for any education deductions or credits (or any other credits) then you could owe as much as ,400 of federal income and self-employment tax. That would be 25% of ,000. So, 25% should be the maximum rate to use to compute those deposits.

I agree with Phil, Stu gave you excellent advice. Keep in mind, when you're considering the revenge option, that you might wish to have positive references from this empl... er other party to your contract.

Also, don't forget state tax estimated deposits if you live in a state with income tax.

Reply to
bill *

That might be clever and even legal, but is it honest? He is getting what he agreed to when he was hired; if he didn't like it he shouldn't have taken the job. To go along with it, not complaining, but planning to sue afterwards seems much like stealing to me; even if it is legal stealing.

Reply to
Confused

~~~~~~~~~~~~~~~ Go to

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and get a copy of Schedule C. It will show a lot of the kinds of expenses you might incur. No one has mentioned it, but if you are paid non-employee compensation you will need to File Schedule C and Schedule SE. Schedule SE is for self-employment tax (13.3% of your net income after all deductions).

Reply to
CRAIG CHITLIN

Of course it's honest.

He was hired as an employee, but they are cheating both him and the IRS by treating him as an independent contractor. What the employer is doing is illegal. And no, it is not honest.

If someone stole your wallet and you had the opportunity to get it back without the thief's consent, would you just let him keep it because taking it back would be like stealing it?

___ Stu

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Reply to
Stuart A. Bronstein

How is the IRS cheated? They get their money either way. Either you pay an independent contract 10k a month, and they pay 1530 FICA tax, plus the federal and state tax. Or you hire them as an employee with a salary of 9k or something like that per month, so that the IRS still gets 1530 total FICA tax.

Reply to
removeps-groups

He was hired as an independent contractor, and paid accordingly.(Presumably they either would have paid him less as an employee, or not hired him at all.) We have no idea if the company was acting in good faith or not, but he now has the obligation to call them on it. If they refuse to fix it (assumed for the sake of discussion that they are actually wrong...) then he can take it to the proper authorities. Instead he is letting them continue in hopes of a bonanza.

If has my wallet I will ask him to give it back; and I won't accuse him of stealing it unless I have to. Nor will I keep silent on knowing he has it in hopes of extorting money from him by threatening to have him arrested.

Stealing wasn't the right word to use; it is more like fraud.

Reply to
Confused

First of all, he was told he had a job at a specific salary. When he showed up to work was when they told him he was considered a contractor, meaning fewer legal rights and 7.5% less money.

By law whether someone is an employee or a contractor is not an issue between the employer and employee, but how the employee's job is defined. In this case he was, by law, clearly an employee. It is the employer's job to know that, and to treat him properly.

Among people in business, this is an issue that gets a lot of press. Any business person who uses a lawyer or account has heard of it, and should know it's an issue to be wary of. That's why, in my experience, in the vast majority of the times an employer gets called on this issue, he fires the employee rather than renegotiate the employment agreement.

If you went into a restaurant and were told they would not serve you because of the color of your skin, would you care whether they did so in good faith because they just don't know the law? If they don't know the law, you can tell them what the law is until you are blue in the face, but it is highly unlikely they will change their mind just on your say-so.

The issue isn't a bonanza. He won't get anything more than he is entitled to by law. And frankly it will be a cheap lesson for the employer. Because, at least in some states, if he is caught by the unemployment workers comp people, he could get handed a huge fine that will dwarf anything he may have to give to his misclassified employee.

___ Stu

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Reply to
Stuart A. Bronstein

you don't say if your compensation is enough to balance out the fact that it is you, not the employer who is paying the taxes. If he is "over compensating" you so the net effect is balanced out, then you should get your experience and move on. If not, you should consider moving on now. Of course other options have been posted already.

Reply to
Pico Rico

SNIPPED

you don't say if your compensation is enough to balance out the fact that it is you, not the employer who is paying the taxes. If he is "over compensating" you so the net effect is balanced out, then you should get your experience and move on. If not, you should consider moving on now. Of course other options have been posted already.

First, let me say that I am trying to slam my colleage Pico Rico, his just happened to be the last in the line of posts. Consider this reply to be general in nature.

There is NO WAY he is going to be "compensated enough to balance out" because there are a whole myriad of other factors that come into play. For example -

A) If the employer offers health insurance, even if its 100% employee paid, subs can't usually participate. Individually purchased health insurance is subject to medical underwriting in many jurisdictions and even when the carrier MUST issue the rates will be higher than with a group plan sponsored by an employer.

B) if the employer offers a retirement plan which they even partially fund for the employee, the contractor misses out. True anyone can open a SEP or SIMPLE IRA or SIMPLE 401(k), but then the entire cost of that plan is on the subcontractor, not paid for by the employer or spread out over the whole of the participating population;

C) how does a sub accrue vacation time or sick leave like an employee?

D) NO matter what anyone tells you, obtaining credit as a self employed person is MUCH harder than when you're an employee. I've seen self employeds who make TWICE as much as a similar employee NOT qualify for the same loans - there is a LOT more underwriting involved;

E) the costs associated with preparing a Schedule C, with depreciation and amortization will be higher than for a W-2 employee;

F) the audit risk for a W-2 return is almost NIL compared to the audit risk for a Schedule C.

G) subcontractors may also need business licenses and have to abide by other regulatory requirements;

H) subs also need to maintain good business records. While almost anyone is capable of doing this, not everyone has the requisite knowledge, education OR desire to keep the records necessary to be in compliance;

I) What about Worker's Comp coverage in case he's injured while working?

J) what about unemployment coverage? Schedule C sole Prop's don't get to pay in nor do they get any benefit (at least not in Maryland);

I) finally, not really, but I have to stop someplace , NOT everyone WANTS to be in business for themselves.

So how are these things quantified? How much extra would YOU need to be paid to make it worth your while? How much risk are you willing to accept to be self employed.

Just my 2 cents, Gene E. Utterback, EA, RFC, ABA

Reply to
Gene E. Utterback, EA, ABA

I remember seeing one analysis saying that to come out equally, an independent contractor would need to be paid 50% more than a similarly situated employee. ___ Stu

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Reply to
Stuart A. Bronstein

see, it IS possible.

Reply to
Pico Rico

Sort of: you can always be an employee by contract even if the law would allow you to be a contractor. It's the other direction that's prohibited. (That is, under some factual circumstances, the law requires that the relationship be employment. It doesn't require that the relationship be contracting.)

Seth

Reply to
Seth

According to consultants I know, it's more like 100%, but that includes allowance for downtime between contracts, so a long-term contract would be discounted.

Seth

Reply to
Seth

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