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  • Sub or Employee?

    After reading some of the posts in Loren's, "Being a Sub", thread (5/4/04), a feeling of grimmice overtook me to the point of airing my situation. Before someone else states it....yea, I'm stupid for letting it go on. That being said...........

    I started in the construction business in 1982 & have worked for several framers & remodeling companies over the years. In 1998, I went out on my own, doing trim/finish work, entirely for homeowners & did quite well, but during one slack time, fell into a deal with a builder, that at the time, seemed to sweet to pass up. As some of you know, that is my current position as job super. I also do the trim & punch-out.

    Here's the kicker. I work 7:30-4:00, five days per week, on a salary that he set (with sales bonus), instructed as to where to report for work, (including work done on his family's residences), (recently, setting up jobs to keep us busy, for wages & material @ his cost), given a weeks paid vacation & holidays of his choosing. Yet, he claims me (& the other two that work with me) as subs. It has been this way for over 3 years & there are 3-4 more years ahead, for the next project.

    Another issue has been injected now, in the form of my G.C. license. He provided the working capital for the license limit, & has used this to claim a "partnership" status on the license, even naming the company himself (I know that's trivial but it still pisses me off).

    I know what he's been doing is probably illegal but is common practice, even with the framing subs I worked for before, but what are the ramifications on me, now that I will be the G.C. on our next project? I'm seriously thinking of pulling out.

    Wayne

  • #2
    Re: Sub or Employee?

    Wayne:
    You might wish to check with you local IRS PR group. They can not according to my information, use information for anything but to help you. I still would be only honest but not honest to a fault because you are at hand. I just do not have an easy feeling around any of those folks, sorry.
    The IRS PR designed people are very interested in getting materials out to us independent contractors on just such topics as you are interested.

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    • #3
      Re: Sub or Employee?

      Wayne:

      It's your license, you are responsible for his illegal activities! Don't turn him in, you may well end up paying all those employment taxes he's been evading, or may even be liable for criminal penalties. Just get out now, pull your license out of whatever business structure he's utilizing, and hope to Hell that he doesn't get caught until the statute of limitations has run. Get out now! You could turn him in for a deal with the IRS not to prosecute you for your cooperation, but I wouldn't trust them to honor a deal. You've got yourself in a real mess, and there is no way out but to hope he doesn't get caught.

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      • #4
        Re: Sub or Employee?

        Question:

        It appears that Wayne is an employee and has been paid as a sub. I am sure that Wayne has reported and paid all of his federal income taxes and self employment tax. Therefore, other than just being classified wrong, if all taxes are being paid what beef would the IRS have with his employer? The only difference in federal taxes between and employee and a sub is that 1/2 of the payroll tax is paid by the employer rather than the employee, plus FUTA tax which is only $68/year.

        Of course there is also the issue of state unemployment tax.

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        • #5
          Re: Sub or Employee?

          Self-employed individuals pay 15.3% in SS and MC taxes. Self-employed people actually pay more than if you are an employee because if you work for someone else you have 7.35% witheld out of your paycheck while the employer pays the other 7.35%. Self-employed persons do get to deduct 1/2 of their self-employment taxes to arrive at their adjusted gross imcome. This being the case then Wayne's "employer" would owe 1/2 of Wayne's self employment taxes and he could end up with a refund depending on what he has claimed as expenses for being self employed.

          I would be worried about the license, insurance & workers comp. Does Wayne have Liability Ins.? Is he covered by Comp? I seriously doubt that if Wayne went to the IRS with questions like this that they are going to be really hard on him. Some people may have a bad taste in their mouth from the IRS but they would be willing to help Wayne figure out if he is liable for back taxes. My advise would be to go to your accountant with the problem, he/she can look at your past returns and run them through again as if you were an employee, if they can't/won't, then fire them and find one that will.

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          • #6

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            • #7
              Re: Sub or Employee?

              Wayne,

              I agree with Dick & Allen, Get away from this slug.It appears this Guy was Treating you all as subs. Paying you like employees (the lazy & irresponsable way of running a buisness.) As real subs Relize the need for hourly reveneus some (4 times + or -) the hourly revenue of an hourly salary of legitimate employees. This revenue replaces: Wages- Benifits - The loss of burden & employer paid taxes - Indirect Overhead and "INDEPENDANT" Sub Contractor Profit.

              Tom

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              • #8
                Re: Sub or Employee?

                My point is this: if Wayne has paid the self-employment and fderal taxes, then the IRS has received all of their money owed, correct? If this is correct, what would be the IRS's reaction to a sub who was really an employee? Is it like not reporting 1099 income, which I believe is a $50 penalty?

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                • #9
                  Re: Sub or Employee?

                  My first post in the new format.

                  My point is that in a state that licenses contractors, the contractor that holds the license is liable for everything that the "businessman" that runs the business does. He is responsible for the taxes that aren't paid! He is responsible for all laws that the "businessman" violates, including criminal statutes.
                  Last edited by Dick Seibert; 12-18-2008, 01:22 PM.
                  You will ask what goal the U.S. is pursuing? .... their external debt is huge, and ruining other countries is their customary method. Even ownership of the global 'printing press' is no longer helping. Nor is full control over NATO, None of that if enough for the 21st century colonizers. They don't just need to preserve the dollar as the only global currency but also to get their hands on the economic wealth of other large powers and regions. - Sergei Naryshkin

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                  • #10
                    Re: Sub or Employee?

                    My first post too. I am not addressing the issue about his license. I am talking only about the tax issue, and that is if Wayne paid all of the federal taxes due as a subcontractor, even though he was really an employee what ramifications are there to his "employer"? They (the IRS) got their money.
                    ============================================

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                    Houzz

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                    • #11
                      Re: Sub or Employee?

                      My first post as well. I think I can live with the new format.

                      The IRS would prefer that he be an employee. They have a hard time collecting taxes on small business self employeed people. Also, some self employeed people don't do the quartley deposits like they should. That's hard on governmental cash flow.

                      Ed.

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                      • #12
                        Re: Sub or Employee?

                        Allan:

                        What I am mainly addressing is his liability for the acts of the guy that is operating on his license. If the "businessman" fails to pay taxes or engages in any criminal activity, he is primarily liable for those acts, and the "businessman" would be secondarily liable. The licensee assumes all liability for the legal entity that is using his license. That is the bigger issue.

                        To address your point: Taxes paid by self-employed subcontractors are paid on an estimated quarterly basis, rather than immediately as an employer must pay (within 3 days in most cases), and employees don't get the huge tax write-offs that self-employed contractors get (like $125,000 a year §179 deductions). There are also Federal mandates to be enforced, like time and one half and double time for overtime, which bring in additional income taxes because these things push employees into much higher tax brackets, many subcontractors actually piece-work and don't pay overtime which is mandated by both federal and state law. And of course, the big thing is Ed's point, the IRS much prefers dealing with the deep pockets and not the little guys that may, or may not, be operating out of a shoe box. The IRS has long made the independent contractor/employee issue a huge concern. The states, of course, have much bigger concerns, because of unemployment, disability, and Workers' Compensation insurance.


                        The new car is in, one of my §179 deductions (I sure don't want to pay Allan's kind of taxes) they are cleaning it up now and I’ll pick it up tomorrow, I am trying to post an image rather than an attachment without creating a link. If you get a link rather than a picture, I failed.
                        http://www.fototime.com/90C54BDCCC89824/standard.jpg
                        I failed, is it possible? I put the [img] before and after the URL, that should give an image posted directly into the forum, rather than uploading a files from our hard drives.
                        You will ask what goal the U.S. is pursuing? .... their external debt is huge, and ruining other countries is their customary method. Even ownership of the global 'printing press' is no longer helping. Nor is full control over NATO, None of that if enough for the 21st century colonizers. They don't just need to preserve the dollar as the only global currency but also to get their hands on the economic wealth of other large powers and regions. - Sergei Naryshkin

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                        • #13
                          Re: Sub or Employee?

                          Allan,
                          To answer you question, if he is an employer, he is required to pay half SSI & Medicare taxes & carry W.C. as well. True, IRS is getting their money, from me, but if he is riding the fence to evade paying employer taxes, he is going to get caught....eventually.

                          As far as my license is concerned, it's not been put to use, yet, on this particular project. That's why I posted this thread, to get input & suggestions before it does. I have spoken with an attorney about this & I have a plan of action in motion.

                          As Dick Seibert pointed out in another thread, a "captured sub" is not legal & that's basically what the three of us are. We work for him exclusively, year round, although, he has no problem (mostly) with us taking side jobs after hours & on weekends (fat lotta fun that is). For instance, our tile man was doing a crappy job & "the boss" talked of getting rid of him. One of the guys wanted to sub this job out himself, after hours (as did the regular tile man), but was told "it doesn't work that way", by "the boss", but he would make that part of his "duties". His other option was to sub the tile & give up his regular job. I'm still trying to figure that one out!

                          Thanks to all who responded.

                          Sam T, my heads way above the sand, so please keep your smart remarks to yourself. This is a discussion & information forum & that's what we're doing.

                          Wayne
                          Wayne

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                          • #14
                            Re: Sub or Employee?

                            Wayne:

                            My question is this:

                            I understand he should be paying 1/2 of the payroll tax, but you are now paying it. When he "get's caught" by the IRS what will/can they do to him since all of the tax owing has been paid.

                            I realize there are issues you have with him, rightly so, and there may be state taxes and insurance issues.

                            Allan
                            ============================================

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                            Houzz

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                            • #15
                              Re: Sub or Employee?

                              Wayne,

                              I'm sorry if that humorous but true statement offended you.
                              If I truely wanted to offend you then as I do now I would have said that unless you immediately see your accountant and your lawyer you are stupid and ignorant.

                              Sensitive and stubborn too.

                              Your "head is in the sand" if you refuse to see that your situation is hazardous to your financial health. A tax accountant and a lawyer are the doctors you need to see.

                              SamT

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