

20 Ways Your Independent Contractor Might Actually Be An Employee - dctoedt
http://www.bakerdonelson.com/ContentWide.aspx?NodeID=200&PublicationID=801

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jerguismi
Wow, what a bureaucracy. In Finland the State has simple database (called
"Ennakkoperintärekisteri"). If you register to that database as a contractor,
you are held responsible for your own taxes/worker payments, and you can bill
companies. Then companies can buy your services without worries. Really
simple.

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madair
Nobody except the contractors wants this to be simple. The contractors would
love it though, there would be less income lost to "preferred vendors" who
provide the contractors with a stiff take on the paychecks, and they'd get to
negotiate their own rates.

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yummyfajitas
People wanting to hire contractors don't want this to be simple?

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conover
The implication being that a lot of company hire people as contractors when
they are really employees and a database like this would instantly eliminate
all the underhandedness.

It's a favorite pastime of labor lawyers to beat companies over the head with
the Fair Labor Standards Act for classifying people as independent contractors
when they are really acting like employees. I'm sure the IRS enjoys it too.

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ShabbyDoo
Why does the government want to discourage a free-flowing labor market? Some
thoughts:

1\. It's easier to force GE to pay the correct payroll taxes for 100K
employees than it is to police thousands of single-employee "companies" that
file Schedule C's.

2\. The government has co-opted corporations into providing pieces of the
social safety net such as unemployment benefits, health insurance, etc. If a
minimum wage employee was offered $1/hour more to be a contractor, he might
take it. Then, if laid off, he might go on welfare instead of unemployment
insurance paid for by the employer's contributions. Employment law enforces a
bunch of social safety net stuff which can be circumvented by contractors.

3\. Net taxes paid would decrease if everyone was a contractor. I have the
right to pay myself a percentage of my earnings and take the rest as dividends
which are not subject to payroll tax, etc. Also, I can deduct mileage from my
home office and other things that reduce taxable earnings.

Can anyone think of other reasons?

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protomyth
Because individual contractors don't pay lobbyists like lawyers and union
bosses. Point 1 is kinda wrong because the IRS has a better chance of
"convincing" individual contractors to pay taxes correctly. Point 3 evens out
and you tend to pay just as much.

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ShabbyDoo
"the IRS has a better chance of "convincing" individual contractors to pay
taxes correctly"

Two things here:

1\. Auditing GE's centralized payroll system is a lot easier than auditing 10K
little businesses. Also, GE has so much to lose that it likely obeys the
letter of the law.

2\. GE doesn't pay its employees and then realize on April 15th that it
doesn't have any money in the bank. Tons of small businesses end up owing
money to the IRS because the owner (the painting contractor, etc.) didn't plan
ahead.

Edit: Please note that I was referring specifically to payroll taxes in my
original comment -- not international tax law, etc.

~~~
protomyth
GE can lawyer up pretty fast, most individuals will do exactly what the IRS
tells them since they can freeze your accounts and put liens on you without a
court date. As I pointed out elsewhere, this isn't driven by logic or the IRS,
it is driven by lobbying money.

~~~
ShabbyDoo
There clearly are many grey areas in corporate taxation, especially when
certain laws only apply to a few large companies. However, payroll taxes are
not such a beast. The rules for how much must be paid as a percentage of W2
wages are pretty simple and easily audited. Furthermore, there's a built-in
cheating detection system -- employees file individual income taxes and assert
the tax payment details provided by their employers. So, it's easy for the IRS
to figure out where fraud is happening. Dispatching an army of lawyers to
argue against the obvious is of little value.

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Freebytes
I get the feeling that this particular issue is probably being examined and
this particular link has been provided based on the research someone did from
when that guy flew his plane into the IRS building. (I forgot his name and do
not feel like looking it up in the moment.) One of his major, even if it was
strange, complaints was the inability for contractors to properly identify
themselves as contractors when small changes to their working patterns can
make them employees instead.

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CUViper
In my internship days, I had an employer who filed me as a contractor for tax
purposes. It felt a bit sleazy, and I felt especially robbed when I later
realized that I had to pay extra self-employment taxes. I really wish I had
spoken up at the time.

There _are_ cases of "independent contractor" abuse, and my case clearly
violated almost every rule on this list.

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epochwolf
This happened to me as well.

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bensummers
There's an almost identical set of rules in the UK:
<http://www.hmrc.gov.uk/ir35/>

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binarymax
From my experience, I feel IR35 is actually set out to be beneficial for the
worker and the organization, whereas it looks as if the US policy is set out
to be beneficial for the IRS and US government.

Although in my circumstances it was quite easy for me to be IR35
compliant...so I may be biased.

~~~
bensummers
IR35 always seemed very reasonable to me. The only thing annoying was that it
could affect those who were being genuinely entrepreneurial because it had to
be general enough to catch all the tax cheats.

Still, in the end it worked out OK. Annoyingly, it also worked out OK for many
of the tax cheats, who just worded their contracts differently.

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catfish
Does this apply to overseas workers hired by a company to perform accounting
and back office communications task. If you pay for a full time employee in
the Philippines or India do you have to worry about payroll taxes?

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balding_n_tired
Not just with techies: [http://www.washingtonpost.com/wp-
dyn/content/article/2010/03...](http://www.washingtonpost.com/wp-
dyn/content/article/2010/03/12/AR2010031202154.html)

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stankal
Does a contractor need to meed all or any one of those 20 points?

How does this relate to contractors hired trough oDesk or Elance?

I see number of points they would meet, for example Payment by Hour, Right to
Discharge, Oral or Written Reports etc.

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touseefliaqat
What about a US company having a offshore office in some poor Asian country
and having some of the employees as contractors. Is there any accountability
for these companies? Can those employees do anything?

