Expert: Shirley McAllister, CPP, PHR - 7/16/2008

Question
QUESTION: I have been working from home for a company for a few years now.  I have been filig as a 1099; however, my company has never issues me one.  I go to the accountant and I pay a self-employment tax.  I have to pay all of my social security tax as well, instead of only half if i was a w-2.  I have a set schedule and i am given tasks to do throughout the night as if I was sitting in their office and working.  I do oncall medical staffing for my company which is based in NJ and I am in NY.  I feel like some how I am paying more in taxes than I should and I feel like somehow my boss is getting away with murder.   Can you explain to me what makes a contractor and/or a 1099 employee.  I feel like I am a w-2 employee, not a 1099.  Also, I have never been sent a 1099 at the end of the year from my boss.

ANSWER: The IRS has established a 20-point checklist the can be used as a guideline in determining whether or not a contractor can legally be paid on a 1099. This checklist helps determine who has the "right of control." Does the employer have control or the "right of control" over the individual's performance of the job and how the individual accomplishes the job? The greater the control exercised over the terms and conditions of employment, the greater the chance that the controlling entity will be held to be the employer. The right to control (not the act itself) determines the status as an independent contractor or employee. The 20-point checklist is only a guideline, it does not guarantee that a person is correctly classified. There is no one single homogenous definition of the term "employee." Most agencies and courts typically look to the totality of the circumstances and balance the factors to determine whether a worker is an employee.

Following are the 20-points that have been established:

Must the individual take instructions from your management staff regarding when, where, and how work is to be done?

Does the individual receive training from your company?

Is the success or continuation of your business somewhat dependent on the type of service provided by the individual?

Must the individual personally perform the contracted services?

Have you hired, supervised, or paid individuals to assist the worker
in completing the project stated in the contract?

Is there a continuing relationship between your company and the individual?

Must the individual work set hours?

Is the individual required to work full time at your company?

Is the work performed on company premises?

Is the individual required to follow a set sequence or routine in the performance of his work?

Must the individual give you reports regarding his/her work?

Is the individual paid by the hour, week, or month?

Do you reimburse the individual for business/travel expenses?

Do you supply the individual with needed tools or materials?

Have you made a significant investment in facilities used by the individual to perform services?

Is the individual free from suffering a loss or realizing a profit based on his work?

Does the individual only perform services for your company?

Does the individual limit the availability of his services to the general public?

Do you have the right to discharge the individual?

May the individual terminate his services at any time?

Employers oftentimes improperly classify their employees as independent contractors so that they, the employer, do not have to pay payroll taxes, the minimum wage or overtime, comply with other wage and hour law requirements such as providing meal periods and rest breaks, or reimburse their workers for business expenses incurred in performing their jobs. Additionally, employers do not have to cover independent contractors under workers’ compensation insurance, and are not liable for payments under unemployment insurance, disability insurance, or social security.

If you feel you are misclassified file a complaint with your Department of Labor and if they determine you are an employee you will be paid all the overtime hours you have worked and they must change your status to employee status.

Shirley




---------- FOLLOW-UP ----------

QUESTION: If I am a proper 1099 :) does my boss need to send me a 1099 at the end of every year?  Does it matter? If it turns out I am an employee (w-2) do they only pay back OT or do you get back the self employment and ss (1/2) that they were supposed to pay?  Also, how does unemployment fall into this?  Is there any pluses to being a 1099 employee.  The most I make working more than 40 hours is about 25,000/year.  Minus what they take as a self employment tax and so on and so forth.

Answer
What type of settlement you get if you are found to be an employee instead of an independent contractor depends on what a judge orders or on what the company and the department of labor settle on in mediation whichever way it is done by your state.

Yes if you are 1099 than the company should be sending you a 1099 every year.

If you are running your business from your home you can deduct the costs of running the business as a 1099 independent contractor. You can deduct portions of phone, power, Internet, computers used,mortgage, interest, insurance,  supplies used. Your tax accountant should know this if he is preparing your taxes. If he is not giving you all your deductions than you need to find a new tax accountant.

Here is a short article at the Internal Revenue site about what you can deduct:

http://www.irs.gov/businesses/small/article/0,,id=109807,00.html

Personally I have a really good accountant and he figures it all for me.

Good luck with this whichever way it turns out.

Shirley