1099 companies

You can file in small claims court. You may be able to file something with the state labor board in your state, but I would expect that it would be necessary to file in court to recover your money. I would not expect any company that paid on a 1099 to not pay their people any more than those who pay on a w2. If the company goes out of business you probably won't get your money in either case.

 

Not so fast.

Just because a person is receiving a 1099, doesn't mean they're not an employee.

The 1099 is simply a way to let the IRS know that this person will be paying the taxes due for that tax year.

If you are paying someone by 1099, AND giving them daily instruction/supervision on things like their schedule, how-to, where-to, when-to, etc., then the IRS claim that person is your employee.

The IRS considers whether or not the person receiving the 1099 has been directly supervised in his or her activities, work schedule, daily work, etc.

In other words, if you are going to 1099 someone, you better also be willing to let them set their own schedule, with very little supervision.

It's important that if you're going to claim someone isn't your employee by giving them a 1099, your actions throughout the tax year towards that "non-employee" must fit within the IRS definition of who is or is not an employee.

 

It boils down to whether the person who receives a 1099 is honest and pays their taxes. If they are not honest then they may file a complaint with the IRS to try to force the company to pay their taxes for them. In the mean time they have had a good time with the tax money that they should have saved to pay the IRS. Some of you talk about paying on a 1099 as being illegal or dishonest. That isn't the case. It is a matter of who pays the tax. With a W2 the company collects taxes from the worker and pays that money to the IRS. It was primarily set up this way because the government felt that most people would not pay their taxes unless the money was taken from them before they received it. It is much easier to collect taxes from a company than an individual. Many people are simply not disciplined enough to save money from their paychecks to pay their taxes. That is the real reason the IRS wants companies to collect the tax money for them. Frankly, I resent being a tax agent of the government. Everyone should be responsible for paying their own taxes. If everyone who works had to sit down and write a check to the IRS every paycheck we would have a tax revolt in this country. As it is, you don't miss what you don't receive. There are many people who prefer being paid with a 1099. There can be some tax benefits to being paid with a 1099. When you are paid with a W2 you are essentially giving an interest free loan to the federal government. You prepay your taxes a year in advance.

 

This is only part of the story.

A company that has W2 employees is responsible for paying half of the employees' social security and medicare tax, which is 15.3% of earnings, or half of $15.30 per $100 earned. The employer benefits by making the employee pay ALL of that tax to the government. So, a 1099 employee pays DOUBLE the medicare / SS tax that a W2 employee pays. And the employer is off the hook. PLUS, the employer is not required to pay for worker's comp insurance and unemployment for a 1099 worker, where they are required to pay for a W2 employee.

That's why it's such a big deal. If you're going to accept a 1099 job, then make sure you add around 8% to your cpm when you negotiate in order to cover this extra tax. And know that you don't get worker's comp or unemployment benefits, while your employer is reaping the rewards. That new Corvette he drives? Paid for by your hard work, sacrifice, and willingness to work on a 1099.

 

Fact is if you drive their equiptment you are an employee and never let them tell you otherwise it is no different than the landscape industry and shady companies trying to get one over

 

The IRS has criteria to be met, when determining employee/independent contractor status.
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
Do it wrong and get caught will hurt. I know two that did and I don't feel sorry for them.

 

When I say "employee" in this context, I mean is he entitled to all the benefits as those drawing a salary or who are hourly in the shop vs. those who are considered "contract labor"? One group must be offered health insurance, and be able to participate in any 401k or life insurance policy, after 90 days (if offered the company) vs. the other "contract" group who the company is not obligated to provide or offer ANY benefits. And there is again the issue of the taxes on the federal and medicare and SS that the employER is NOT required to pay (however somebody must pay them and that somebody is he driver)

The OP inquired why do some companies make their drivers operate under contract/1099 and I was explaining why. You can consider a "contract driver" an traditional employee if you wish, but where taxes are concerned, that driver is on his own if he can't pay his/her self-employment taxes, and from the employer's perspective there is a HUGE difference, especially in regard to taxes and benefits provided.

 

The point is that it's not YOU (the employer) who determines whether or not someone is considered a contract employee vs. traditional employee. The keys to determining a driver as a 'contract driver' are 1. that the truck is his truck, and 2. he is free to accept and refuse any load, and is free to set his own hours and routes.

If those criteria are not met, then the IRS will determine (at audit time) that the employee cannot be deemed a 'contract driver'. There will be penalties, fines and interest assessed. And they may go after the employee for any unpaid taxes.

 

The benefit package offered, or available, has nothing to do with determining the employment status, though. The majority of companies that pay drivers on 1099s are doing so, against IRS regs. One of the basics in determining status, is who is supplying the tools, in this case the truck, to do the job. To get past that, the company would need to hire a driver from a legitimate third party, such as Ryder or other employment service. In that case, the trucking company would pay the company supplying the driver on a 1099 and in turn they would be responsible for the proper withholding and filing of the taxes, plus workman's comp and unemployment insurances.
This is seldom done, I understand, but that is the way the rules and regs are.
Paying a driver on a 1099 may be common practice, but that common practice does not make it legal under the laws.

 

It is NOT illegal to pay someone on a 1099. The IRS has guidelines, but they cannot make laws, at least not yet. Most companies who pay on a 1099 have a high enough compensation package that most drivers can earn more than if they were paid on a W2. I challenge anyone to show me a law that says that it is illegal to pay someone on a 1099.

What difference does it really make if a driver is paid on a 1099 or a W2 as long as he pays his taxes? If he fails to pay his taxes then he could be responsible for penalties and interest. If a driver isn't willing to take responsibility for paying his own taxes on a 1099, then he should not agree to work for a company. He should find a different company for whom he can work that will take his money and pay his taxes for him.

Drivers who are paid on a 1099 can purchase an occupational accident policy for about $35/week that is similar to workers comp. He could also pay his own workers comp. It is all deductible if you are a 1099 worker.