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Question

Is it legal to hire someone part time as an employee(taking taxes out, etc) so they are able to be bonded (the accountant) and also pay the same person as contract labor when they work over the 20 hours per week. The pay per hour would be different as an employee and as contract labor?

Submitted: 287 days and 20 hours ago.

Category: Employment Law

Value: $15

Status: AWAITING CUSTOMER ACTION

Redwood Valley, California

Accepted Answer

Hi,

It depends on the details of the work to be done. If the work done as an employee is identical to that done later as a contractor, you will run in to issues of whether or not the employee is actually a contractor after the 20 hours worked, even if they are being paid as a contractor under the 1099 form. Even if the employee signs on as a contractor for anything over 20 hours, courts may construe them to be an employee, making them eligible for minimum wage and overtime pay protections under Federal law (the Fair Labor Standards Act).

So, in short, while there may not be any problems with hiring the employee as both an employee and a contractor, whether the employee will actually be considered a contractor (Thus not being eligible for overtime and minimum wage protections) will depend on how a court sees the level of control the employer has in how the employee does hir or her work.

I hope that information helps. Please do not hesitate to ask any follow up questions, and I will try to answer them promptly. However, please also be aware that, as it is late, I was planning on logging off soon, and may have to get to your follow up questions in the morning.

Take care

Accepts:
Expert:	SavyLawyer
Pos. Feedback:	100.0 %
Answered:	2/8/2009

Employment Lawyer

Licensed to practice law, I have experience in Employment, Appeals, and Landlord/Tenant Law

287 days and 3 hours ago.

Reply

Thanks and I guess our question is a little more detailed. We, the employer and the employee as well as our insurance carrier have no issues with the employee/contractor split relationship. We are doing this so she can be covered under our insurance policy for bonding. What we need to specifically know is that if we ever got audited by the IRS and this one relationship of part time employee, part time contractor came up, would we be facing any issues around this arrangement?

We do not want to be paying for full time workers comp and she is not looking for it as well, but we both want her under our umbrella policy at the store, which a split relationship with part time employee and contractor would achieve.

Posted by SavyLawyer 287 days and 2 hours ago.

Answer

Ah, that is a slightly more complicated question. I did a little research and it looks as if the IRS "frowns" upon seeing an employee registered both as a 1099 contractor and a w-2 employee at the same time for the same job. Having said this, I do not see any actual regulations forbidding it, its just something that might raise a few flags at the IRS. However, even if there are no regulations forbidding it, it is never a good idea to take any actions that will raise any red flags with the IRS. One good website for further information might be http://www.taxsites.com/Federal.html.

There are, of course, exceptions to every rule, and so your next step probably would be to consult a certified public accountant in your area (or a tax attorney, although CPAs are generally cheaper).

I hope this information helps, and please do not hesitate to ask if you have any follow up questions.

Take care

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