work force commission

[colectron]

Hey my friend,

Would you please help me, I think I am trouble.
I have received a call today from an agent of Texas workforce commission asking me why I have not been unemployment taxes for one of my former employee. I explained to him that I had a verbal contract with the driver that I will not be holding his taxes but instead that I will be giving him a 1099 at the end of the year so he can take care of his taxes on his own. Driver agreed. The Workforce agent is telling me that I am require by the law to give this driver a w2 so withhold his taxes, he claims the driver is not a contrator since he is not using his own equipment but mine. He is asking to get back with him ASAP with a total dollar amount I paid the driver so he estimate how much money I need to pay for unemployement. This is new to me, ever since I have been in business I never paid unemployment for any of my drivers.

Would you please help with your advice.

[furbis]

I think you better make an appointment with you CPA and ask him to clarify this for you.

[no_worries]

If they're driving your equipment they cannot be independent contractors. Your drivers are all employees and as such you should be paying unemployment taxes. I don't know how the division of taxes works in Texas, but you probably should have been paying Workmens Comp as well. You've stayed under the radar until now...Incoming! :shock:

[silvan]

If they're driving your equipment they cannot be independent contractors. Your drivers are all employees and as such you should be paying unemployment taxes. I don't know how the division of taxes works in Texas, but you probably should have been paying Workmens Comp as well. You've stayed under the radar until now...Incoming! :shock:

Well, I don't know. GMAN and I were having this conversation in another thread. He seems to think it might be legal to run a driver as a "contract laborer" under certain circumstances, depending on the allocation of control, and to what extent the driver is independent of it.

After thinking about it, I think GMAN could be right. I guess what it comes down to is that I don't think of the owner as my "boss," and when people make jokes like "Carl is going to make you wash that thing" or whatever, I just blow it off deep down inside. He can't make me wash the truck. He's not paying me to do that. He can't demand that I take a run somewhere else during one of the weeks the plants on all ends of my route are shut down, although if I want to, I can. He has suggested we "switch out" and suggested I might want to "run the system for awhile" but he has taken no for an answer without pushing the issue, and I don't feel like he's trying to control me.

So I guess I more or less am legitimately an independent contract driver. Or at least I'm not desperate enough to let somebody start jerking me around, and change the terms of the deal we agreed on at the start of this thing. I don't really know for sure what's what, but I guess it's good enough that I'm not going to rock the boat.

As far as the OP's situation, since it's the state knocking on his door, he'd better get his ducks in a row. There's a form that I as a 1099 employee can file with the IRS to get them to make a determination as to whether I'm in fact an employee or not.

I can't find that form off hand, and I'm bored with this topic now. Here's one interesting link I found though:

http://www.topechelon.com/recruiters...ng/20point.htm

[solo379]

I think I am trouble.

That's for sure!
The best advise for you right now, to hire a tax professional, and let him handle it.
Either way, it's gonna cost you, the question is- how much!? :sad:

[mudpuddle]

To be considered a contractor you must provide three things. Your own tools (is it his truck?), your own transportation (probably ok on this one), and the contractor must be able to make his own schedule (do you tell the driver where to be and when?). If your contractor/employee doesn't provide his own tools, his own transportation, and his own schedule you're probably in hot water up to your neck.

[no_worries]

There is no situation where a driver is classified as an independent contractor that would pass the IRS test of Financial Control which is used to determine worker classification. The question goes much farther than whether or not you consider someone your boss or your right to refuse a particular instruction. If the driver has no financial stake or potential for profit OR loss, i.e. owns or leases the equipment, pays for fuel, pays for insurance, etc. they will never be classified as and IC. And that's without even having to apply any of the other test the IRS uses to determine classification.

[yoopr]

You're supposed to make the driver a 1099 driver in the beginning and not midStream when you're contacted by a Tax authority

[arky]

I actually did this a couple of years ago with some dump trucks that I owned but had drivers in them. I asked my CPA how it should be set up and she told that nearly every dump truck driver (at least in this area) is paid "contract labor".

Well, I did get the same call from the Arkansas Employment Security Division. I was as polite and honest as I could be with the guy and told him that all I wanted to do is be legal. He told me that I did owe money and that he would collect it...so I tallied up the wages I had paid to the drivers and reported it (this all took place in a matter of a couple of hours). The charges were very little ($200-$300?). I guess I was lucky because we hadn't been in business long at the time.

Now for the rest of the story. Once I was signed up, I had to do the monthly report thing and send in money. I talked to my CPA again and told her what was happening. She chewed me out pretty good! LOL. She told me that I was NOT responsible for this and that I should call the main office in Little Rock and tell them I was operating under the provisions for contract labor.

I made the call. I asked the lady whom I spoke to if it was legal for me to pay contract labor. She did not know so she talked to her supervisor and then told me yes it IS legal! So I then asked her if they could remove my name and my company name from their records completely and she said yes. I never heard from them again. I did not even try to collect the money I had already paid in. I just kind of decided that I was on the winning side at that point and they could keep the money. lol

With all that said. You should do some research on the subject. I have done quite a bit of research since those days and found that I was on a VERY, VERY slippery slope with the contract labor stuff. Many and I do mean MANY people pay contract labor, but very, very few of those people would escape an IRS audit if the IRS chose to take them to task on it.

When you finally get to the end of all this, you will find that it is very much in your best interest to have workman's compensation on your drivers whether they are considered contract labor or not. If you don't, at some point your gonna get sued and lose everything you've got...my opinion. The workman's comp. is the expensive part. The employment taxes (don't remember the correct term), are actually not too bad and worth what you pay in to have the peace of mind that your not having to dodge anybody.

sorry for the long post, but I have had the same call that this guy just got, so I thought I should share my thoughts.

Arky

[arky]

It looks like some of us are cross posting, but I do want to add this.

If you want to be sure that your legal. Get away from the contract labor! This will cost you some money now and in the future (workman's comp is the killer). If you do want to do it this way, you will probably be ok to just tally up the total wages you've paid to your driver and submit those numbers to the guy that called you. From my experience your tax liabilities will not amount to much.

I'm sure they could choose to fine you. I did not get fined. I'm assuming it was because I was as honest as I could be and never argued with the man.

If you want to stand tough on the contract labor issue, you better get a good CPA and maybe a lawyer to advise you on every step of the process. Your dealing with your state employment security division now. The IRS is the one you don't want to answer to.

Arky

[yoopr]

it is very much in your best interest to have workman's compensation on your drivers whether they are considered contract labor or not.

I'm not a tax expert by any means but I'm not sure that you can have worker's comp for a driver and him being a 1099 at the same time.
I'd check on that

[arky]

I agree yoopr. That's what I was trying to say in my unclear way. lol.

The two kind of go together. To me the only real reason to do contract labor is to avoid the worker's compensation. The unemployment taxes are minor.

One thing I suggest is to contact all of your local temp agencies. They will hire your drivers and then contract them right back to you with everything in order...for a small fee of course. Some will even offer programs to allow for vacation and insurance packages if you can afford it. There are other "payroll companies" out there too that do much the same thing.

What I found was that the rates the temp agencies charge were not that bad considering that a small employer pays outrageus rates for worker's comp. Apparently the larger temp agencies get a greatly reduced rate. The only hang up I had was that we only had one temp agency in town and they would not do truck drivers. Anything else I could have gotten. I'm sure that you could find someone to work with you in a larger city.

[GMAN]

Most states will allow you to have a APP or OPP policy in lieu of workers compensation as long as you don't have over a certain number of employees. In my state, it isn't required unless you have at least 5 employee's. If the driver pays for his own policy, it might be easier to classify him as an independent contractor. These policies are really better than workers comp, anyway. They are usually easier to deal with and pay off with less hassle. The cost is normally less than the cost of workers comp. But then workers comp is through the state and APP or OPP policies are through private sources. Each state has different requirements concerning workers comp. Some states don't require workers comp until you have 8 employees. North Carolina forces you to have workers comp with only one employee, so I have been told.

[solo379]

I'm not sure, but i guess , the only possibly legal way to do that set up, would be, if you just lease your truck to the driver. He makes a lease payments to you, and the rest is up to him!

[GMAN]

If you are going to 1099 a driver you need to get them to sign a document where they understand that they are responsible for all taxes and that they are not an employee, but a independent contractor. Everything should be spelled out in black and white so there are no misunderstanding about who is responsible for the taxes. You still must meet certain guidelines. Simply having a verbal agreement will likely not protect you, especially if the former employee denies that you had any agreement.

I am curious as to why the labor people got in touch with you. Did your former driver file for unemployment insurance?

[no_worries]

If you are going to 1099 a driver you need to get them to sign a document where they understand that they are responsible for all taxes and that they are not an employee, but a independent contractor.

This arrangement may satisfy various state agencies, but it won't mean anything to the IRS should they decide to look at you.

[GMAN]

It depends on your relationship with the driver as to whether he can or should be considered an employee or an independent contractor. The IRS looks at trucking a little differently than if you work in a factory.

[no_worries]

The IRS looks at trucking a little differently than if you work in a factory.

That is not an accurate statement. The standards applied in determining worker status are exactly the same, regardless of the industry involved. Trucking happens to be an industry that has never drawn much scrutiny on this issue, though the current Fedex case may awaken a sleeping dog.

Even though there are several tests the IRS would apply, there's really only one that they will have to apply in the driver/contractor scenario:

Why are you classifying the driver as an independent contractor?

I can't think of many explanations that will seem legitimate other than the avoidance of associated taxes, and you certainly can't say that.

[GMAN]

I am only repeating what the IRS has told me. Those are the exact words I was told when I visited my local IRS office a few years ago. If you pay a salary, provide benefits or workers compensations, you will have a difficult time making a case for the driver to be an independent contractor. The IRS told me that it had to do with control. If the driver decided what loads he took and where he went, then he could be considered an independent contractor. There were a few other things which fit my situation that enabled me to classify my people as independent contractors. I am only passing along what I was told. Each situation can be somewhat different. According to what I was told, some drivers can legally be classified as independent contractors much the same way as some salesmen can be classified in the same way. I pay percentage rather than mileage. That may also have been a factor, but the control seemed to be the most important factor to them.

[Brown67]

What about an o/o who is leased to a company. A lot of these companies pay for base plates etc, and the company is finding them loads. So are they independant or not?