Contract Workers (1099 Status) vs. Real Employees

Discussion in 'Hosting Talk & Reviews' started by drmike, Apr 30, 2014.

  1. drmike

    drmike 100% Tier-1 Gogent

    May 13, 2013
    From that other thread.... As per our leader MannDude:

    contract workers vs real employees and general labor laws applicable to the web hosting industry


    So, contract work status 1099 is second in the a big chunk of the web hosting segment maybe only behind straight cash/trades of services for work.

    Group input and general rules anyone in these parts uses to determine tax/employee status (specific to United States, although likely similar in many countries).

    When do you call someone a contractor versus when do you call someone an employee?  We are speaking about tax status here, not letterhead/biz card titles bandied about for corporate image inflation.  No legal way, at least normally that say a Vice President of a company could be a 1099'd consultant.
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  2. DomainBop

    DomainBop Dormant VPSB Pathogen

    Oct 11, 2013
    A few links from the IRS that may be helpful in determining whether a worker is an employee or contractor: (the most relevant info is pages 4-9)

    If you're running a US "company" you need to familiarize yourselves with the criteria the IRS uses to determine whether the person who is doing work for your "company" is a contractor or an employee.  You might call them a contractor but the IRS may think differently.  (sorry, there is no TL;DR for learning the rules when you're operating a real company.  You either need to take the time to learn the rules yourself or hire a lawyer, accountant, etc to make sure your business is in compliance with all the laws of every locality, state, and country where your business operates.)

    Agreed, and I'm going to extend that to say that if the "contractor" is listed by name with any job title on your about us page or staff/team page of your website you're probably going to have a hard time convincing the IRS that they aren't an employee.
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  3. EtherVM

    EtherVM New Member

    Mar 27, 2014
    Why would the IRS want to reclassify your "CONTRACTORS" to "EMPLOYEES"?


    Back Payroll taxes (penalties and interest)

    Employer's share 7.5%

    Obama Care (if you are big enough)



    Unemployment Pool

    +Various State level taxes (Work Force Training / Uncontributory Health Insurance)


    Employment Fringe


    Workmans Comp - % of gross payroll (vary by state)

    Very to expensive to have employees in the USA.
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  4. tchen

    tchen New Member

    Sep 1, 2013
    General questions used to determine employee status are

    1) does the person work ONLY for you? 

    2) do you control the times worked/meetings of said person?

    3) is the work primarily carried out using your equipment?

    4) are there set minimums /or guarantee of money earned?  

    5) is the contract open-ended?

    6) is the 'contractor' creating the key item being sold by your business?

    If the answers are overwhelmingly yes, then you're going to be in trouble.
    drmike likes this.
  5. NickM

    NickM New Member Verified Provider

    May 15, 2013
    I was actually involved in a situation where an employer claimed I was an independent contractor, when I was actually an employee, so I have a little bit of experience in this arena.  Basically, the litmus test is "Who is in control of HOW the work is done?"  A person who is told by a company "Here is what the end result should be, and the due date, get it done" is an independent contractor.  If the company has control over other aspects of the job, such as requiring you to come to the office, or work specific hours, or anything like that, you're an employee.
  6. MannDude

    MannDude Just a dude vpsBoard Founder Moderator

    Mar 8, 2013
    This is a good thread, and something most are not a 100% clear on. (Myself included)

    I was under the impression that to be a contract worker, it meant that you could only work for a limited amount of time as such and without a set schedule. Is this true?

    Last Fall I did some temporary work for an established, large company. I recall them stating they can't really tell me 'when' to work, but to try to be available when possible throughout the week during a certain time period and that if I stayed with them past XX days I'd have to become a regular employee.

    I didn't stay with them long enough for that to happen, but they're the first company who mentioned this to me. I've worked for several, some of which were large, established, non-lowend hosts who hired me as a contract worker and paid me per hour or per month, on a set schedule.

    So, what gives? 

    What's the major advantages or disadvantages as the worker? What about as the employer?

    As a worker, should you push for regular employment? It seems to be more troublesome for employers as no one seems to offer regular employment and hires only contract workers, some of which literally work for years and years as such. What rights do you gain as a regular employee? As a contract worker, does this mean I am free to work for two companies at once as such, regardless if I signed a non-compete? (Note: If my employer is reading this, I have no interest in working for another company... just creating discussion ;) )

    Lots of uncertainty regarding this.
  7. DomainBop

    DomainBop Dormant VPSB Pathogen

    Oct 11, 2013
    EtherVM's post outlined why many employers would rather list you as a contractor (hiring employees mean the employer has to fork out for payroll and other taxes, benefits,'s friggin'costly to the employer), and why it is better for you if you're listed as an employee (unemployment insurance if you get laid off, workmen's comp, benefits/insurance, paid holidays etc). 
    Last edited by a moderator: May 1, 2014
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  8. drmike

    drmike 100% Tier-1 Gogent

    May 13, 2013
    Day to day I have 60+ employees I oversee.

    Years ago, a chunk of them were 1099'd.  The suits we pay recommended stopping that practice and putting them straight as employees, due to pesky regulations.

    The boil down on whether you are a consultant or employee for me goes like this:

    1. Do you have to be somewhere daily that said payee dictates (their offices, their customers worksites, etc.?)  If you have to punch-in, keep time sheets then you are an employee.

    2. Do you have a start and/or end time you don't control?

    3.  Do you use payees equipment, vehicle, computer, phone, etc?

    If you answer yes to any of those are even kind of uncertain, you are almost certainly an EMPLOYEE, regardless of what they payee might be doing on status.

    Contract work is big and wide open deadlines.. Like, vaguely at best, you can say, I need this document by the end of next week.  Saying I need this document by end of today, meh running into problems there.

    You can visit payees offices for project updates, so long as the nature of such is to get input and go about your way.  You go there sit in meetings all day, sit down and do work in their office, well, crossed that line again.

    So in this segment, if you are sitting at home being a ticket monkey you are inevitably on a schedule, you are using their systems to perform the work,  no question you are an employee.

    You can as a consultant do spot projects and be compliant as 1099 status.  Now if you are doing all sorts of configs and in other systems (like billing and such) probably running wrong on rules.  Remember vague time control, on you as consultant to get it done and ample buffer between no and then... Meaning, you can do that work at 3AM in your underwear while sipping on whiskey.  If that's an issue or not permitted, you are an employee again.

    Consultant 1099 status is ninja work - one and done.  Cash and carry.  As a consultant, you should be under NDA and maybe other documents to protect everyone.  Projects should be detailed, much like a bidding process, even if informal bulletpoints in email (I will do this and this and this for you for $X by Y date.)
  9. mikho

    mikho Not to be taken seriously, ever!

    May 15, 2013
    Every thursday (soon to be wednesdays) I work at an animal hospital, 8am to 5pm.

    I use their equipment and has no specific tasks/project except "avoid disaster and keep things working".

    I am there as a consultant, not employed by that animal hospital.

    So the 3 point you mention is not a hard drawn fact.

    The only thing that you actually can base an employment is if you have an employment contract. If such a thing does not exist then you are consulting for that company and from the money you get paid by said company, you are responsible to pay taxes etc.....
    drmike likes this.
  10. drmike

    drmike 100% Tier-1 Gogent

    May 13, 2013
    Well, there are exceptions and still can be murky.

    Working at a place with a schedule they set?   That's employment relationship, as an employee. Could be a community non profit type place and misusing volunteer status.  That comes to mind here... Perhaps the laws in your country are different...

    Hospitals, for humans, play some games  widely with who a given doctor is working for and his status (extremely common).  They use contract labor during every strike and that's why Union labor has a fit.  The SCABS aren't even working legally as employees they are functioning as / replacing during the labor dispute period.

    Unsure why there isn't more enforcement in general.   I know many people who are wrongly classified as 1099 workers.
  11. mikho

    mikho Not to be taken seriously, ever!

    May 15, 2013
    The deal between the company that I actually work for and this animal hospital is that they buy my time and knowledge. This is consultant work straight up.

    Selling my body and mind, like a prostitute :)