
Independent Contractors Treated as Employees in Tech (How to Prevent)? - mancerayder
I&#x27;ve noticed an increasing trend that companies and agencies will hire you as an independent consultant with the resulting lack of job security and benefits, but without the <i>advantages</i> of being an independent consultant.<p>Those advantages are around flexibility of hours, autonomy and of course higher pay.<p>Other than higher pay, I&#x27;m finding companies are loosey goosey in their hiring and treatment of contractors.  In one recent SOW I came across via an agency (as a subcontractor to a contracting agency), upon arriving on the first day there suddenly was a 9 to 5 requirement such that the contractor gets reprimanded if they arrive at 9:05;  moreover they have a &#x27;manager&#x27; with tight control over the contractor&#x27;s time, work and whereabouts during the work day.<p>To me this signifies an employee-employer relationship.  And this is tech, not Uber drivers and the ambiguity around that.<p>If you are a tech consultant, what can you do, if anything, to avoid these situations?  Sometimes you do not know until you begin the actual engagement.
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chrisbennet
If you are a direct contractor, it sounds like the IRS would consider you an
employee. If you are actually an employee of a company that contracts you out
to a 3rd party, then this doesn’t apply.

 _”The IRS developed the 20-Factor Test shown below to help employers evaluate
whether a worker is an employee or an independent contractor. No one factor on
the test is more indicative of employee status than another. If there is a
high number of “yes” marks, then it will most likely indicate the presence of
an employment relationship, a high number of “no” marks may or may not
indicate a contractor relationship.”_

[https://www.regent.edu/admin/busoff/pdf/20-questions1099test...](https://www.regent.edu/admin/busoff/pdf/20-questions1099test.pdf)

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mancerayder
Fully agreed. Question is, what's the best course of action? Is this common?

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chrisbennet
You’re treated as an employee because you _are_ an employee (of the
contracting agency). You aren’t an _Independant_ contractor. And yes, it sucks
depending on the agency.

You need to go contract Direct if you want to be treated as an “independant”
consultant. The Agency usually makes you sign something that makes it near
impossible to contract Direct for a company they place you at. You need to use
your network to find your own contracts. This is easier said than done.

~~~
mancerayder
Wait a second. What if you're contracting via an LLC and they (the consulting
agency) made you sign a contract that it's not an employee relationship?

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Spoom
IRS protocols very frequently override contracts in this regard. If they
determine that you should be treated as an employee by the 20 Factor Test (see
above), they will go after the company for their half of your back payroll
taxes. The form to initiate such an inquiry is Form SS-8:
[https://www.irs.gov/forms-pubs/about-form-ss8](https://www.irs.gov/forms-
pubs/about-form-ss8)

While an SS-8 is pending, you can file your taxes _as if_ you were a W-2
employee by filing Form 8919: [https://www.irs.gov/forms-
pubs/form-8919-uncollected-social-...](https://www.irs.gov/forms-
pubs/form-8919-uncollected-social-security-and-medicare-tax-on-wages)

I did this in Canada (long ago) with a former employer who contracted me but
treated me as an employee, and the Canada Revenue Agency sided with me,
regardless of the contract text. All I've read suggests that the IRS is
similar in this regard.

Keep in mind that if you do this while you're still employed, they are likely
to fire you. The ideal thing to do here, if you can negotiate with the
employer in good faith, is to have them void the previous 1099s and file back
W-2s for you, so you can then file amended 1040s and get back your previously
paid tax. Unfortunately, an employer who would do this in the first place is
likely just trying to avoid payroll tax liability, so I doubt you'll see much
success going this route.

~~~
ccajas
I believe the statute of limitations is 3 years, correct? I have been a case
of being misclassified as an employee but paying me on 1099. But that happened
over 9 years ago so I don't think I have a case anymore.

~~~
Spoom
I'm not sure. There are limits on claiming a refund (e.g. if you are filing
previously unfiled returns), but I'm not sure that they apply in case of a
dispute. Let us know what you find.

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jmheinkle
Your observations are perfectly correct, the short answer is these are low
quality (and sometimes exploitative) job shops. You should avoid.

What I think is going on is that consulting stratifies into two groups: high
quality consulting exactly as you envision with high pay and freedom, and
these consultancies which effectively are low quality labor.

Obviously avoid the later if you have no other choice. In addition to the
shitty pay, you will suffer serious penalties to respect and the projects
you’ll work on will be the least attractive (and sometimes shitty and
dangerous in other ways).

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BjoernKW
There are usually some red flags:

\- the language used during the sales process points to an employee-employer
type relationship

\- conditions like full-time and having to work at the client's office all the
time

\- the sales process itself is treated more like an interview process (you
have to provide documents like a CV first etc.)

If you encounter these or other aspects that feel off: Walk away.

If the contract stipulates you be at their office from 9 to 5: Walk away

If the contract doesn't say anything about this but the client still tries to
enforce such rules: Point to the contract and if the client still insists,
again walk away.

If this sounds overly harsh or opinionated please keep in mind as a contractor
/ consultant you're running a business and an essential part of running a
business is establishing long-term, trustworthy relationships. You can only do
this by agreeing upon and adhering to clear conditions of how you do business.

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ccajas
I have been a victim of a 1099 misclassification scheme. At the time I had
graduated just three months ago and taken a job at a small web development
agency that was run on a very tight budget- mangement was "top heavy" meaning
there was about 1-2 managers per in-house developer and designer, and the rest
of the team worked in India.

They expected me to show up to the office every day 9-5, while I was working
as an independent contractor, along with other treatment as employee (was
given my own computer and desk, etc). As a few people have pointed out, yes
this is common in exploitative job shops.

Unfortunately it was beyond the statute of limitations when I found out I
could take action by verifying status with the IRS. But I still have the
physical printed out contract with me. It says $15/hr on 1099 as contract-to-
hire with conversion to $20 on a W2 after 3-6 months. I was never put on a W2
and I have worked there for at least 18 months.

Now to answer the actual question- how to prevent it? It's hard to say. The US
has laws in place to prevent this but without acknowledgement of the problem,
the bite is weak. A lot of these things occur due to simple ignorance of the
victim's part.

Perhaps a general "professional development" course to be taken in a junior of
senior year of college could help smooth things out? Then less college
graduates will be left behind, and there's less risk for them to go through
the school of hard knocks after graduation.

Such a course doesn't have to be limited to employee-employer or contractor
relations. It can cover issues related to how to deal with workplace politics,
understand what perception does to others at work, etc. There are many gotchas
that people do not see entering the white-collar workforce.

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closeparen
Any software engineer should be able to find work as a W2 employee with
benefits good enough that i.e. healthcare costs are not something that ever
crosses your mind. I suggest researching compensation norms, as I suspect you
are wildly underestimating your market value. If this isn't true in your
location, you might need to move to a larger city. Our skills are in high
enough demand that none of us should have to rely on legal protections to be
treated well.

There are no job-security advantages to being a regular employee, by the way.
Employment in essentially all of the US is at-will.

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kahnpro
This is a very US-centric answer. In other countries there are absolutely job
security benefits to being an employee.

~~~
closeparen
This is the website of an American venture capital firm focused on a community
that occupies a small stretch of coastal California. The poster did not
specify a foreign country. Of course it's a US-centric answer.

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itamarst
Presuming this is long-term contract (3-6 months), you basically are going
through same process as employee - need to interview the company first, need
to read the contract, and not sign it if it's not acceptable.

If they're asking you for stuff that's not in the contract, say no. If they
persist, walk away.

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tytytytytytytyt
Learn how to say no. It's not complicated or difficult to avoid what you're
describing.

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rajacombinator
Nothing about your situation says independent contractor. You work for an
outsourcing sweatshop that sells labor as contractors to further reduce their
rates.

