1099 Controversy, IRS 20 point checklist, and Form SS-8

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
WiseGuy
Posts: 20
Joined: Sat Jun 18, 2005 12:17 pm

1099 Controversy, IRS 20 point checklist, and Form SS-8

Post by WiseGuy » Thu Jun 29, 2006 7:05 pm

Can a recruiting/staffing agency circumvent the IRS as well as the various employment withholding requirements for employees by:

1. Hiring you as an "independent contractor",
2. Have you the "independent contractor" hire your own employee (which is really yourself),
3. Include a clause in you employment contract stating the recruiting/staffing agency is harmless from all claims for unemployment compensation or inadequate state and federal withholding that could arise if you're mis-classified as an employee vs. an independent contractor by the IRS because it is the contractor's (ie. yourself's) responsibility?

For the record, here's the relevant sections of my Employment Contract:

"INDEPENDENT CONTRACTOR AGREEMENT"

This Agreement is made this XX day of June 2006, between ABC Company hereinafter called the “Employerâ€￾ and WiseGuy, hereinafter called the “Contractorâ€￾.

WHEREAS, ABC COMPANY desires to enter into an Independent Contractor Agreement with Contractor whereby Contractor will supply a skilled individual to be designated herein to perform professional services on a temporary basis as work is available and Contractor will supply the individual for the assignments designed by ABC COMPANY;

NOW THEREFORE, for and in consideration of the mutual promises of the parties contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

1. Contractor agrees to provide the services of WiseGuy, a skilled individual (hereinafter “Contractor’s Employeeâ€￾), to meet the needs of professional services. ABC COMPANY’s customer will control the assignment length, the start date for such assignment, and deliverables with ABC COMPANY.

2. ABC COMPANY represents that the initial assignment for Contractor’s Employee will be with XYZ Company, a customer of ABC COMPANY.

3. The agreement between ABC COMPANY and Contractor is effective XXX 2006. Length of assignment is based on “Customer Estimationâ€￾ and may be reduced or extended at the discretion of the Customer. However, the terms of this agreement are subject to re-negotiation for new assignments, extensions, and revisions to an existing assignment. A verbal description of new and proposed revised assignments to include the scope of work, duration, and work location (as a minimum) will be discussed with the employee. Either party has the right to terminate with a 2-week written notice.

4. The Contractor agrees to provide weekly invoices itemizing labor and travel expense. A customer approved weekly timesheet and expense voucher (if applicable) needs to accompany the invoice sent to ABC COMPANY.

5. ABC COMPANY has agreed to pay Contractor at the basic rate of $XXX per hour payable in accordance with ABC COMPANY’s regularly scheduled pay period. Overtime, if applicable, is paid at the rate of $YYY per hour, for time worked over 40 hours in one week. Pay periods begin on Monday and extend through the following Sunday. If applicable, per diem will be paid at the rate of $XXX per full week as negotiated with the Contractor.

6. Contractor agrees to be solely responsible for all state, federal, and foreign withholding, and/or self-employment taxes for its employee. Contractor agrees to hold ABC COMPANY harmless from any and all claims for unemployment compensation or inadequate state and federal withholding which may be assessed against ABC COMPANY for any reason whatsoever.

Assuming I am mis-classified as a 1099 instead of a W-2, is Clause #6 above enough to get the Company off the hook for any potential fines and penalties?

Thanks,

CK

Mark T Serbinski CA CPA
Site Admin
Posts: 611
Joined: Tue Oct 26, 2004 8:05 pm
Contact:

Post by Mark T Serbinski CA CPA » Sat Jul 01, 2006 7:35 pm

IRS has always wanted to classify independent workers as employees, and has assessed companies for failure to withhold and remit taxes and social security in many cases.

If you take this route, then really the onus for the payment of social security and tax withholding or estimated payments will rest with you instead of the company engaging you.

What some people have done to reduce the likelihood of classification as an employee notwithstanding contractual arrangements to the contrary, is to have the individual incorporate a corporation which then engages the individual as an employee, withholds and remits taxes and social security, etc. It is more difficult to have a corporation classified as an employee, especially if other engagements are taken on by the corporation, and if proper payroll withholdings are made.
Mark

nelsona
Posts: 16510
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Sun Jul 02, 2006 3:11 pm

It is noteworthy that this poster is interested in avoiding the need to pay SS tax altogether by maintaining Cdn residency. Thus the importaance of the employee/contractor issue.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Post Reply