What does it mean when you aren't an employee, but you still get paid?

[OS]

I went to an interview/meeting today for some computer job. Here's the strange thing. You get paid as a "consultant" to do regular, scheduled work for them, but officially you aren't an employee of the company. Apparently, almost everyone working for this guy is dealt with like this. Is there any reason to do things in this strange fashion? I suspect a tax dodging scheme?

 

[The Stigenator]

hummm sounds fishy..
did you file a contract with him. Cause if he doesnt do that then possibly the guy is trying to cover something.
By the way is this job in Miami Florida?

 

[urbantechie]

nm

 

[Dameon]

Main reason - No benefits. No health, medical, dental.
As the consultant, you must do your OWN withholding for taxes, otherwise you will get nailed by the IRS come tax time next year. Unless you have a spouse working with good benefits or have no need somehow for medical, dental insurance etc.... I'd pass.

 

[OS]

No contracts yet. This is in socal.

So is it mainly to dodge benefits? I'm a full time student and I have health coverage from both the university and my father's health plan so I'm ok there. How does this tax thing work out?

 

[Harrald]

That means you are only paid money. No benefits. You are responsible for your own health insurance. Also if they run out of projects for you to work on you will be laid off without un-employment insurance. It's a good deal if you are good with money and can save for the lean times.

 

[Dameon]

Pretty much, find an online tax calculator for the year, and try to take out the correct % out of your own account. I'd reccomend starting a savings account at Etrade or someplace like that. Someplace you can't just walk down there and get the $$$ from, and that keeps it seperate from your checking account. It will never be there come April 15th if you keep it in your daily expenses account.

You should be getting paid above average wage to tolerate this, or have a large leeway in your schedule or something to compromise for it. This setup, depending on how the contract is written, also allows them the right to fire you for pretty much any reason. If you are not "employed" then it may be difficult to sue under federal discrimination laws / EEOC.

 

[The Stigenator]

yeah you should get paid a little more than if regular employee who has stuff that is subtracted. But MAKE SURE you have teh
contract. The reason is because I worked for a while for this company in a similar sitution. The company was based in Marina Del Rey. I left them once I realised I could never get a contract signed (plus the guy was a crook and I didnt want help him in his goal, so I left him. Now there is an SEC investigation on him).

 

[OS]

Ok, thanks for the words of advice. Never ran into a similar situation before.

 

[DDCSpeed]

how much r u getting paid........if you dont mind.. cuz i am planning to be a consultant after i graduate from college.

 

[UG]

If the person were to hire you as an employee, he'd have to pay half of your social security and medicare payroll taxes (half of 15.3% of your wages), pay a small percentage (like 2%) of (like the first $7,000 of) your wages to the state and federal governments for unemployment tax, and pay either for medical insurance or for worker's compensation insurance.

By hiring you as an Independent Sub-Contractor, he avoids those expenses by passing those taxes on to you.

However, he courts disaster with the IRS if he's contracting people to come to his office(s) to perform regular, open-ended time frame work, supplies the contractors all the tools/equipment required to fulfill his business's needs, requires the contractors to work specific hours and limits the ability of the contractors to come and go as they please. In other words, IRS will tell him he has employees and will ream his @ss for unpaid payroll taxes (a seriously unfunny Federal crime for which they throw folks like him in jail), penalties and interest.

To find out, let him sign you (hire you). Then, the next work day after you receive your first 'paycheck' leave an hour after you arrive for work. If he b1tches, he's considering you to be an employee (Independent sub-Contractors are just that--Independent--and can come and go as they please).

Then, I'd go to the local IRS office and turn his sorry, soon to be poor @ss in for payroll tax evasion and screwing with hard-working folks trying to eek out a living and not needing to be screwed my some devious miscreant.

 

[UG]

Oh, after the 12 to 18 months it might take for the IRS to ream him a new one, I'd then sue him in small claims court for his half of your payroll taxes that IRS says he should have payed because you were really an employee and he should have paid it.

 

[UG]

 

[RaDragon]

You'll be filing a 1099 by tax season (instead of getting a W-2). You'll definitely need to withhold your own taxes (make sure you remember to keep money aside as your paycheck comes, otherwise, come tax season, you'll be crying with how much taxes you'll be paying!). You also have a variety of deductions as a consultant: for instance, if you drive to work everyday, you can deduct your gasoline expense, etc.

 

[The Stigenator]

gasoline, food, cell phone bills (if you have one), computers if you need to buy any, paper, pencil, 25cent chewing gum can all be deducted if you can show the bills.

 

[yakko]

<< That means you are only paid money. No benefits. You are responsible for your own health insurance. >>

Just like a job should be.

 

[UG]

<...Just like a job should be...>

You'll never get rich working for someone else.

 

[OS]

<< how much r u getting paid........if you dont mind.. cuz i am planning to be a consultant after i graduate from college. >>



About 15 an hour, which is pretty good for the level of skill it requires. It's for teaching a small and relatively informal community class on computers. I was at one session and I seriously think any half wit in the general hardware forum could teach this class. Easy work. Apparently, the guy on top gets alot, if not all, of his funding from the city/government. I don't know the implications of that however.





<< if he's contracting people to come to his office(s) to perform regular, open-ended time frame work, supplies the contractors all the tools/equipment required to fulfill his business's needs, requires the contractors to work specific hours and limits the ability of the contractors to come and go as they please. >>



Yeah actually he does all of that from what my friend tells me. I mean there is this guy that was been working under him for five years but he's still &quot;officially&quot; independent?! At this meeting today, I got the gut feeling that there was something slightly shady about the setup, and it appears that this is it. He actually said something to the effect of, &quot;don't call the payment I give you a paycheck. If you do, I can get in very big trouble.&quot;

This is great info UG, thanks a bunch!! I hope I don't have to do all that stuff, but it's nice having leverage on your side of the ring





<< gasoline, food, cell phone bills (if you have one), computers if you need to buy any, paper, pencil, 25cent chewing gum can all be deducted if you can show the bills. >>



This is good to hear because it's actually a 40 min drive from where I live, assuming medium/light traffic. Much worse when traffic is heavy and it consistently is. The drive alone almost makes it not worth it, but if I can deduct it, that makes it worthwhile.

Thanks for the info again, you guys rule

 

[RaDragon]

np and good luck w/ your job!

 

[compuwiz1]

This is actually becoming a trend. Employees are a liability, as well as they require mass accounting load, extra personnel to track them, state labor records, unemployment insurance, health,withholding, 401k's, etc.
Some companies would rather put the burden of that back on the individual, hence, independent contractors, or consultants. Then they can legally dodge having an Employer / Employee relationship.
I helped a friend set up a promotion agency, which would take their own inventory of cars to a location, in a different city, 2-3 times per month and have a sale. They would contract the sales people and sales managers out, there were no employees, only independent consultants.

 

[UG]

<...&quot;don't call the payment I give you a paycheck. If you do, I can get in very big trouble&quot;...>

Bingo. Smoke his @ss!

Actually, being an Independent sub-Contractor has A LOT going for it. Better than being a mere employee.

You just have to let the skanky b@st@rds who try to take advantage of you know that you, and your Enrolled Agent, are in control of the situation and that you always have the IRS on your side--always interested in finding and reaming such scum at least just for the kicks.

Go ahead, worthless trash. Make my day!