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Hello, my name isXXXXX & I'll be helping you today. My goal is to give you a complete & accurate answer that you can understand.
If you were to be examined & the IRS were to assert that these framers were actually employees rather than independent contractors, and they prevailed, you would not only be liable for their personal income tax liability under the "failure to withhold income tax rules", but you would also be responsible for the related employer payroll taxes.
Is this what you are asking?
HOW WOULD THE IRS DETERMINE WHETHER GUYS ARE MY EMPLOYEES OR SUBCONTRACTORS?
There is a series of questions that are used to make that determination. I can give you a link to them before we are done. However, the issue centers around how much control you have over the individuals; if you determine their hours, pay them by the hour, control how they perform their work and they work most of the time for you (rather than other framers or similar work, you can pretty much count on them being classified as employees.
The IRS is really starting to clamp down on this very issue, including in the building trades.
I WILL PAY ONE MAN AND HE WILL PAY THE REST OF THE MEN, BY THE HOUR. HE WILL DETERMINE THEIR WAGES, AND THEIR WORKING HOURS. THEY WILL ALSO WORK FOR OTHER CONTRACTORS.
Here's a link to the 20 factor test that the IRS uses.
As you can see, there's been a lot of history related to this very question and it has led to a great deal of litigation with the results being inconsistent but always expensive.
If your arrangement is with one individual and he employs the crew, then the determination of employee/independent contractor may fall on him with respect to whether or not the framers are employees or his or are they independent contractors.
Also, anyone that you treat as an independent contractor you should have a written contract with that spells out what is to be done, the compensation under the contract, the payment terms, and an acknowledgment that the subcontractor is classified as an Independent Contractor and that he is responsible for his own income and social security tax payments.
YES MY ARRANGEMENT WILL BE WITH ONE MAN. I WOULD BE RUNNING THE RISK, WHO THE IRS WOULD DEEM AS EMPLOYEE/INDEPENDENT CONTRACTORS. IT SOUNDS IT WOULD BE A HEAVY RISK TO TAKE. WHATS IS THE WORST CASE SCENARIO?
WHAT WOULD BE THE BEST WAYS TO PROVE, IN DOCUMENTATION; THAT THESE GUYS ARE NOT MY EMPLOYEES.
The worst case is that you owe a lot of money, taxes interest & penalties. The amount would depend upon what payments you made to independent contractors that were actually emoloyees.
As I said previously, I would suggest that you read the 20 factors the IRS uses and attempt to stay on the right side of those for as many as you can. Also, your independent contractor(s) should be operating under a written contract which clearly fixes the liability for income taxes with them.
You probably need to have an attorney draft up a standard agreement that you can use.
You will need to consider the requirements for workmen's compensation insurance in your state. Most require independent contractors in the building trade to be covered by the General Contractor.
Of course you should also have a general liability policy to protect yourself from any business claims that may arise for whatever reason.
THE MEN HAVE THEIR OWN WORKERS COMP AND GENERAL LIABILITY POLICIES.
I HAVE MY GENERAL LIABILITY AT 1,000,000 AND WORKER'S COMP AT 500,00
You can't buy a workmen's compensation policy on yourself so I don't know how that's possible.
THAT POLICY IS FOR THE 3 MEN I HAVE THAT WORK FOR ME, OUTSIDE OF THESE MEN.
I'm not talking about your policy, you said the independent contractors had their own workmen's compensation policies.
Are these 3 men your employees?
What kind of work do they do?
SUPERINTENDENTS FOR THESE MEN.
That would be a significant indication that the supervised individuals are employees.
SO WHAT CAN I DO TO PROTECT MYSELF?
Independent contractors are not supervised; they perform under a contract and are judged based upon how they meet the terms of the contract;
Treat everyone as employees. You'll never be certain that you won't be challenged if you treat them as independent contractors, particularly when on one job some are employees & some are independent contractors.
OK, WHAT TAX FORMS WHAT I NEED TO GIVE THEM? WHAT IF THEY ARE NOT LEGAL CITIZENS?
Unfortunately, only you can determine if it is worth the risk. Generally, all you need is one "independent contractor" to get fired and go apply for unemployment compensation and claim he was actually an employee and you're right in the middle of it; the Labor Board in your state gets involved & they almost always side with the "little guy" and then the IRS are the last one's in.
OK THANKS FOR YOUR HELP
If they are not legal citizens, that it is illegal for you to hire them and there are potential criminal penalties for that. For all new hires, you have to have a Form I-9 on file which documents that you have examined their papers and determined that they may be legally employed.
It is impossible to protect yourself again the illegal alien problem.
If you hire them.
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