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Richard
Richard, Tax Attorney
Category: Tax
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Experience:  29 years of experience as a tax, real estate, and business attorney.
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my wife just started a job at a salon , she gets paid 50% commission

Customer Question

my wife just started a job at a salon , she gets paid 50% commission plus tips . they want to give her a k1 instead of a w2. is this legal.
Submitted: 1 year ago.
Category: Tax
Expert:  Richard replied 1 year ago.
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.


Good afternoon. Since she is not a partner or an owner, a K-1 would not be the appropriate document. If she is not considered an employee, but rather simply an independent contractor, they should issue her a 1099 rather than the W-2.



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Customer: replied 1 year ago.

they want her to fill out paper work like she is a limited partner , but they treat her just like a regular employee , no profit share , they make all the rules they do this with all there employees , I think to avoid paying there share of taxes , ins, unemployment , and so on . but I dont see how this can be legit


 


 

Expert:  Richard replied 1 year ago.
Thanks so much for following up. There would be no justification for her signing any such paperwork unless they are going to give her an ownership of the business. If she is an employee, then they need to pay their share of all the payroll taxes...FICA, unemployment, Medicare, etc. and issue her a W-2. If they are going to treat her as an independent contractor, then they wouldn't pay any of these benefits, but would issue her a 1099 and she would be subject to self-employment tax.

The issue of whether she is an employee or an independent contractor is a facts and circumstances situation with no black and white answer. I have set forth those factors for you below. But, neither would make her an owner.


The 20 factors used to evaluate right to control and the validity of independent contractor classifications include:
• Level of instruction. If the company directs when, where, and how work is done, this control indicates a possible employment relationship.
• Amount of training. Requesting workers to undergo company-provided training suggests an employment relationship since the company is directing the methods by which work is accomplished.
• Degree of business integration. Workers whose services are integrated into business operations or significantly affect business success are likely to be considered employees.
• Extent of personal services. Companies that insist on a particular person performing the work assert a degree of control that suggests an employment relationship. In contrast, independent contractors typically are free to assign work to anyone.
• Control of assistants. If a company hires, supervises, and pays a worker's assistants, this control indicates a possible employment relationship. If the worker retains control over hiring, supervising, and paying helpers, this arrangement suggests an independent contractor relationship.
• Continuity of relationship. A continuous relationship between a company and a worker indicates a possible employment relationship. However, an independent contractor arrangement can involve an ongoing relationship for multiple, sequential projects.
• Flexibility of schedule. People whose hours or days of work are dictated by a company are apt to qualify as its employees.
• Demands for full-time work. Full-time work gives a company control over most of a person's time, which supports a finding of an employment relationship.
• Need for on-site services. Requiring someone to work on company premises—particularly if the work can be performed elsewhere—indicates a possible employment relationship.
• Sequence of work. If a company requires work to be performed in specific order or sequence, this control suggests an employment relationship.
• Requirements for reports. If a worker regularly must provide written or oral reports on the status of a project, this arrangement indicates a possible employment relationship.
• Method of payment. Hourly, weekly, or monthly pay schedules are characteristic of employment relationships, unless the payments simply are a convenient way of distributing a lump-sum fee. Payment on commission or project completion is more characteristic of independent contractor relationships.
Richard, Tax Attorney
Category: Tax
Satisfied Customers: 46846
Experience: 29 years of experience as a tax, real estate, and business attorney.
Richard and 3 other Tax Specialists are ready to help you
Expert:  Richard replied 1 year ago.
Thank you so much for the positive rating! I appreciate having had the opportunity to serve you! If I can be of assistance to you in the future, just look me up and I will be happy to help!
Expert:  Richard replied 1 year ago.
Thank you also for the bonus! I appreciate your kindness!

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Richard
Richard
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29 years of experience as a tax, real estate, and business attorney.