question about employee vs. contract

It hasn’t actually happened yet. I was asked to do something that would violate the law and I said no I would not do it. Then I was told it might be better if I didn’t work here as an employee so they would change me to a contract worker. I don’t know why they would want to do that. I’m still not going to do what they are asking if it’s illegal.

IRS doesn't recognize such "status changes"; if there is no change in the relationship they will regard you as an employee and the employer will be held liable for all employee and employer withholdings - even if you set up a corporation for yourself and your corporation paid all withholdings, i.e., employee (you) and employer (your corporation). Yes, the IRS can still go after the company you are billing if the IRS determines, according to IRS regulations, that you are actually functioning as an employee of that company. Yes, that means IRS will collect the withholdings twice, as they will not refund the withholdings your corporation sent in for you. The "tough stance" is meant to discourage businesses from "scamming" and making employees contractors when they really are doing exactly the same jobs and are NOT functioning as a real business, which would have a business-to-business relationship with the original employer, i.e., be able to negotiate contracts, substitute employees doing the work, etc.

Here is some IRS info on this:

http://www.irs.gov/uac/Employee-vs.-Independent-Contractor-%E2%80%93-Seven-Tips-for-Business-Owners

If your current employer expects to have a degree of control over your ‘operation’ as an independent contactor....well, you’re really still an employee.

My stepson worked for a guy as a roofer...who handed him a 1099 one day. The IRS actually has a form, you fill it out describing who controls the hours, negotiates with clients, furnishes supplies, etc.....a ‘case’ is started....and, in my stepson’s case, eventually a determination is made and the employer gets a nice letter telling him to pay his half of social security.

Had an employee in the past who decided she wanted to start her own business and be an independent contractor because of some family care issues. Both she and I had to do battle with IRS and TWC in Texas over the switch. She did evidence meeting some pretty specific standards such as getting her own dba, having a business checking account, advertising her services, negotiating fees, using her own equipment, working without supervision but with a written contract which outlined the scope of the services, having her own work site, etc. Finally resolved and she was able to start her own business.

She did have to pay full SS tax as well as Medicare, so the freight on that was 15.3% of her net business income, not 12.5%. Not sure how employers get away with just deciding to switch an employees to contract.

Texas also has rules which govern when comp time can be given in lieu of paying for overtime.

Bottom line is that I would check out regulations from employee’s home state Employment Commission and see what is legal and what is not.

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