Boy are you in luck ... the IRS has a publication just for you that
should help at
http://www.irs.gov/forms_pubs/pubs/p15atoc.htm
The IRS uses a 20 point test (See form SS-8) to determine if a person is
an employee or contractor. And you can file an SS-8 to get a
determination if you're not sure.
Your "contractor" is the real problem, because she really didn't
understand the law or the situation. Who paid her? If you did, then
she should have gotten a real strong message ... although you should
have withheld taxes at that point. If the client paid her, the fact
that she got a net check (with no withholding) should have been a
tip-off. Also, the absence of the traditional employee benefits
(insurance, pension, orientation) is another big clue.
Go read the sections of 15-A about direction and control, they should
provide you some guidance. If you're doing corp-to-corp, it also
provides an extra layer of protection for you.
[I now replace my CPA hat with my EDI hat, and don my flame retardant
suit.]
Lotsa luck, you're in for a nasty ride. Uncle wants to classify
everyone as employees, it increases the tax collections at the federal
and state level, and also pumps money into the local payroll taxes that
1099 contractors can skirt around. For instance, an individual that
presents himself as a C corporation and draws a salary has to file as if
he has another employee - down to the quarterly payroll reporting and
unemployment and disability. However (at least here, and probably there
too), a corporation officer is prohibited from collecting unemployment
or disability benefits. Or workmen's comp claims. But you'll be forced
to provide these benefits for yourself, the employee.
[Putting the CPA hat back on. If you're a contractor in New Jersey,
call me. Really. You need an accountant.]
> Julie Ballantine wrote:
>
> I need your help. I have been contacted by the Employment Development
> Department. They are auditing my company in about 3 months. Here is
> the situation:
>
> My company provides consulting, contract-to-hire, and direct placement
> services to companies in need of EDI or EC related consultants.
>
> We sent a consultant (1099), name not mentioned, let's just call her
> Graceful, to a company on a "contract to hire" basis. This consultant
> signed a contract that clearly stated she was an independant
> contractor, and not an emplyee. After 3 months, if the company liked
> her, they were going to hire her. The problem was she did not perform
> her job functions, as she indicated she could during the screening
> process, and I had to let her go - at the request of the client.
> Then, she submitted a request for Unemployment insurance at the EDD.
>
> Her benefits were in question because my company responded back
> stating that her contract clearly stated she was an independant
> contractor, not an employee. We sent EDD a copy of the contract.
> This caused the contractor to call EDD and state that she "didn't
> understand her hiring terms and thought she was an employee". How
> many of us DONT read our contracts???? Her confusion caused the EDD
> to investigate and ultimatly classify her as being an employee of my
> company. They determined this because of the terms of the work
> environment: on-site, at "my clients" office. I can understand that
> this type of contractor would be classified as a "employee". An
> independant contractor works when they want and where they want. I
> can agree with the contract to hires as beign classified as W2.
> Fine.
>
> Now, the EDD is auditing us to make sure we dont have any other
> "misclassifications".
>
> The big question I have here is this. I have other "independant
> contractors" that work out of their offices, on their own time,
> receive other income, and work with their own equipment that I do not
> provide. I had explained circumstances, and the EDD stated that
> because they are doing work for my client and I am paying the
> "consultants", they are classified as W2 employees also. I disagree
> with this. What are your feelings on this? Do you know of any
> resources that can help me prove the "Independant contracotr" vs. the
> "Employee"? Has anyone else gone through this - win or loose? I am
> going to fight this until the end.
>
> Thanks for your input on this.
>
> Julie
>
--
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Brian Lehrhoff ([EMAIL PROTECTED])
EDI Consultant
Dynamic Web Enterprises
973-276-3114
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