1099 limitations of how much work you can give a contractor. Need some help with that


4

I think I am pretty good (having dealt with tons of contractor developers) at staying within independent contractor rules and keeping the Labor Department at bay, when it comes to using subcontractors. There is definitely no substitute for W2ing someone strategic to your business.

What I have been encountering is what I call "forever contractors" (those who never want to be W2 ever again). They are darn good and I am sure they would take every piece of work I would send their way, but with the heavy DOL enforcement I am weary of crossing the IC-test line. It is easy if it is corp-to-corp relationship, but gets trickier with those running and sole proprietors. And I highly doubt most could be convinced to shell out for and spend time on LLCing or Inc-ing themselves.

Besides the obvious IRS/DOL sites, are there any good sites/blogs dedicated to the issue I can check out?

I would love to stay on top of this issue and out of the DOL bullseye.

P.S. I treat my ICs just like I would treat my own employees. I am just concerned with recent uptick in enforcement. States need money to replenish unemployment insurance, so they are coming down hard on startups and small shops.

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asked Aug 10 '10 at 08:17
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Apollo Sinkevicius
3,323 points
  • Great question. Maybe consider converting them if their skill set is needed for a long time. You might be already out of compliance and keeping critical skill sets in house may be of bennefit. At this point I suggest bringing in legal councel on how to handle. – John Bogrand 8 years ago
  • I would love to convert several of them to W2... problems is neither I have a chance, nor my other friends working with them have. Those guys and gals got burned so bad with couple of companies before, there is no way they ever will do W2 ever again. Sucks... for the lack of better term. – Apollo Sinkevicius 8 years ago

2 Answers


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Dror makes a good point on this. The IRS site is crystal clear on the rules but can be over burdensome. The biggest ones that trip people up are:

  • The contractor is only working for you: This is bad. So bad, that you need to find a way to change this. Working solely for some company is a big red flag.
  • Using Your Equipment/Software: If you provide the tools, then there is something to be said that you are guiding their work.
  • Having set hours: If you require them to work during certain hours or at your facility, then that lights up a red flag as well.
  • Long Durations of Contracting: If they don't have another contract and they have worked for you for a long time or consistently, then it can appear like they are an employee.

I know of some companies that limit the total continuous amount of time a contractor can work for them (say 18 months) and only go through agencies (so they deal with LLC's). Just be smart about how you structure the deal and make it crystal clear what you expect and you should be fine.

answered Aug 11 '10 at 22:05
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Jarie Bolander
11,421 points
  • Well... I am absolutely in compliance of the four you mention. I work with some workaholics, so I know besides bunch of my work they also get buch of work from others. Still DOL and IRS are merciless, so I want to be safe rather than sorry. – Apollo Sinkevicius 8 years ago
  • It's good to be safe. Remember that this law really came about because of Microsoft and how they handled "contractors". We can thank them for ruining it for everyone else. So, be careful but not paranoid. I am sure you are trying to do the right thing. – Jarie Bolander 8 years ago

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As far as resources
https://encrypted.google.com/search?client=ubuntu&channel=fs&q=employee+contractor+Irs&ie=utf-8&oe=utf-8 Which includes
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html http://www.twc.state.tx.us/news/efte/appx_d_irs_ic_test.html
http://jobsearchtech.about.com/od/laborlaws/l/aa121800_3.htm I know that you were asking other than the IRS sites, but why not rely on the horse's mouth.

You say "I treat my ICs just like I would treat my own employees." That's exactly the kind of thing that'll get you in trouble. If you treat them like an employee, they're considered employees by the IRS and you need to pay taxes.

The rules are relatively clear and as long as you follow them you should be in good shape.

answered Aug 10 '10 at 14:02
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Dror
1,833 points
  • By saying "I treat my ICs just like I would treat my own employees." I meant I treat them with same respect and consideration as I do with employees. – Apollo Sinkevicius 8 years ago

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