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Employee wants to offer yoga classes during lunchhour. Company

Employee wants to offer yoga...
Employee wants to offer yoga classes during lunchhour. Company wants to pay her for this service as a contractor. If company observes all the applicable tax laws, is it ok to proceed? She will receive a 1099 from the Company at year-end as well as a W-2.
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Answered in 56 minutes by:
7/11/2013
WebCPA
WebCPA, Tax Accountant
Category: Tax
Satisfied Customers: 111
Experience: Licensed CPA. 10+ years experience.
Verified
Welcome and thank you for your question. I'll do my best to provide an informative answer. Please let me know if you need any clarification.

While I cannot provide legal advice, I have some ideas to combat any tax related issues that would arise from this type of arrangement. I would recommend the employer and "contractor" draft a written agreement outlining the terms of the arrangement. This will document the separate functions provided by the individual as a contractor which would be entirely separate from the functions provided as an employee. The agreement should state that the contractor retains the right to cancel the services, set the schedule, etc. This will not only meet the criteria for qualifying as a contractor, but will also document the fact that this service is not a required part of employment and will separate the functions.

Finally, the contractor/employee could set-up a separate legal entity such as an LLC, and obtain an EIN. The employer could pay the entity as a contractor instead of paying the employee/contractor. Therefore, the paycheck goes to the employee and employee's SSN, while the 1099 goes to the business entity and that entity's EIN.

I hope you found this helpful and thanks again for using this service!

Kind regards
WebCPA
WebCPA, Tax Accountant
Category: Tax
Satisfied Customers: 111
Experience: Licensed CPA. 10+ years experience.
Verified
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WebCPA
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