Expert: Shirley McAllister, CPP, PHR - 2/4/2010

Question
QUESTION: Hi,
I have a vending machine company and I am looking to hire someone.  Am I able to pay them with a 1099?  I've looked at the 20 point checklist the IRS has put out and it seems that I might be.  The employee will be paid straight commission on sales, and these sales are dependant on how well he/she fills the machine (ie. the type of products they put in, some sell better than others).  Therefore there is some control in their pay.  They have certain days they need to work, although their hours are flexible (it doesnt matter when they do it, as long as it gets done).
Does this sound like a case where I can pay with a 1099?
Thanks
Marc

ANSWER: If the worker can choose his hours, choose the products he uses and if he is allowed to work for other vendors than he is a 1099 independent contractor. If you set his hours, give him all the products to use and tell him he can only work for you than he is an employee.

Shirley

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

QUESTION: Thanks Shirley for the response.  Yes, he can choose the hours he works, within reason.  For example, some locations must be serviced before they open.  It doesn't matter on the time, just as long as its before they open.  Yes, I don't care if he works for other people doing the same job.  I give him all the product, but he decides what goes in the machines.  For example, he can put any flavor of soda in he wants.  I supply the soda flavors and he chooses from it.
The only thing I really choose is the days they work, and if they ask for different days, I accomodate them.
So knowing that, 1099 or w2?  Also, if it is 1099, all I am required is to pay him the commission he makes and give him a 1099 at the end of the year, correct?  Do I report it to the IRS anywhere?

Marc

Answer
1099 Misc would be used. Report his income on the Other income line. a copy is sent to the contractor and a copy is sent to the IRS.

If you want to make it very legal you could draw up a contract with the contractor with the terms stated above and have him sign it. That way he is a contract worker with a signed contract.

Shirley