[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]

Originally Posted by 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:

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]

Originally Posted by colectron

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