I'm curious - is anyone else seeing a lot of 1099 abuse these days?

I've been hearing about and seeing a lot of 1099 abuse these days. By that, I mean employers hiring more on 1099 than w-2, when they really should be hiring on w-2.

For instance, I know one place that laid most of it's workforce off, but then they've been hiring people back on 1099 for half of what they used to make. However, they want them to work 8-5:30 just like they used to work. I've seen some people take MINIMUM WAGE 1099 work, I think because they really don't know how little that is once taxes get paid.

I've seen 1099 increasingly in ads for work as well. I live in an area where unemployment is a good bit above the national average. I'm not sure what it is right now, officially it's been running 12-14% but we know a lot of people that were working in housing that were laid off and have since ran out of benefits, so I wonder what it really is.

I was just curious if others had been seeing this?

reply to post by hadriana


Elaborate on what you consider "abuse".

In case those joining in do not know what a 1099 employment agreement is: Instead of being an employee you are considered an 'independent contractor'. The relationship between employer and a 1099 agreement is slightly different in a few aspects.

Take for instance: As a 1099, an employer can ask for certain work to be accomplished but cannot dictate the methods of how that work would be completed.

So back to the OP, in what areas of work are you seeing an increase of ads for 1099 employment?

You are correct in that there is a lot more 1099 vs W2. I'm not so sure that its abuse though. A lot of small employers simply cannot hire people on a W2 basis. The taxes, the SS, unemployment taxes and the cost of the paperwork would make it unaffordable for a lot of small business to hire help. I know because I am one of those small business owners. I only have one person working with me but it is on a 1099 basis. If I had to do it on a W2 basis then I wouldn't have an extra person and I would be working a much rougher schedule myself and couldn't grow my business. So, I can help employ one person on a 1099 or leave that person unemployed.

If it is a large company that already has employees then I would be more supicious of abuse. The 1099 allows them to not provide benefits and avoid the taxes.

reply to post by hadriana


Dear hadriana,

I've been hearing about and seeing a lot of 1099 abuse these days. By that, I mean employers hiring more on 1099 than w-2, when they really should be hiring on w-2.

The fact is that if you are sent a 1099 the company is basically saying that you are an independent contractor and not an employee. While the laws are slightly different from state to state, the difference between an employee and an independent contractor is that independent contractors are supposedly independent in how they do their job, if you make all of their decisions for them and control too much about how they do their job then supposedly they can be sued and forced to treat you as an employee. The benefit of having independent contractors is that you don't have to meet all of the employment laws which place requirements on how you tread employees. Peace.

Well right, that's what I mean.

I'm seeing and hearing of companies laying off a lot of their folks, then hiring them back as 1099 workers, but dictating the same relationship - work 8-5, do whatever you are asked, basically the same OLD working relationship, but now you are getting paid as a 1099 worker instead of a w-2 worker.

I said fire, I meant laying off

reply to post by ownbestenemy


I'm seeing a whole lot of it in the housing market, prefab, design, supplier, ect.

reply to post by hadriana


It depends -- in what industry are you seeing this happen? You have been vague and I think those of us that have responded to you are getting curious.

My point being is say a Plumbing company used to employe its workforce as a standard W-2 employee but through the economic downturn and other various factors had let people go -- but now needs employees again because of a local economic upturn -- might see it more beneficial to hire as independent contractors.

Those under a 1099 employment agreement will still have to do what the employer wants them to do -- but the employer no longer can dictate how the work is accomplished (of course the employer does still have some control of how the contractor conducts their business and reflection upon the company they are working for).

On the other hand if say a retailer is firing and hiring back as 1099 -- they wouldn't be able to get away with it nor would the economic risk be worth the perceived benefits for the employer. Certain industries wouldn't be able to sustain their workforce as independent contractors.

Of course we have the unknown factors, unemployment factors and those who "just want a job" who might be coaxed into a 1099 agreement; but once they gain a little bit of knowledge they could severely cripple their employer if said employer is abusing the agreement and IRS definitions.

It all depends on the industries and that I am wondering is what surrounds your question.

EDIT TO ADD:

Then that makes sense. That wouldn't be abuse. Sounds more like your local industry is just retooling and restructuring. The construction industry is heavily contracted and gaining employment is a rarity, but being an independent contractor is much more prevalent.

Originally posted by TXTriker
You are correct in that there is a lot more 1099 vs W2. I'm not so sure that its abuse though. A lot of small employers simply cannot hire people on a W2 basis. The taxes, the SS, unemployment taxes and the cost of the paperwork would make it unaffordable for a lot of small business to hire help. I know because I am one of those small business owners. I only have one person working with me but it is on a 1099 basis. If I had to do it on a W2 basis then I wouldn't have an extra person and I would be working a much rougher schedule myself and couldn't grow my business. So, I can help employ one person on a 1099 or leave that person unemployed.

If it is a large company that already has employees then I would be more supicious of abuse. The 1099 allows them to not provide benefits and avoid the taxes.

Thats because the big corporations like Wal-mart want to run small business owners out of business so they can monopolize the entire world and enslave all humanity.

The employee vs independant contractor abuse happens all over the place. It saves employers tens of thousands of dollars every year, and more and more employers are getting nailed for it now.

Here in Canada, Labour Standards has hammered down on these companies.

All someone has to do is prove to the Labour Standards Board or Unemployment Insurance that the employer demanded that they set the person's work hours, number of hours worked, etc etc without allowing the "independant contractor" the freedom to make his own hours and the Labour Standards Board has the employer by the short and curlies.

Thus forcing the employer to have to pay back taxes, EI premiums, CPP contributions, etc, which then means that the employee can now collect EI after getting laid off because he was, in fact, an official employee of the company.

It really runs rampant particularly in the construction industry where they can get away with hiring "contractors" more easily.

Revenue Canada is just finally catching on to the game in the past decade.

Yeah, I've seen 1099 becoming more and more used. See, they don't have to give you benefits or pay taxes on you. You're basically just a temp worker. That's a lot that's going on these days. And, yes, I see more and more companies abusing this to bypass the traditional route. My dad's been working as a 1099 guy for over a year now, and I wouldn't be surprised if I start hitting that too once I get further in an IT career.

Yes, I worked for a mom and pop telecommunications company for about 10-years. We exploded as soon as we secured fiber monies. We expand beyond belief.

After we purchased a 1.5 Million dollar OSS, we were slaving to migrate our data, round table testing, data collection, etc. We had never worked so hard in our lives! Someone called the DOL and the sh*t hit the fan. Mandatory Manager's meeting to discuss the ramifications and how to tips on "guiding" associates into saying the right thing for the better of the company.

On a Friday, I walk into work and the VP tells me tells me we are changing the pay scale to Salary Non-Exempt. Not us (management) of course, we would stay Salary. However, you need to discuss this with your associates and explain the new pay structure. If you have any issues, HR will assist you. I was given one sheet of paper outlining the details.

-50 Hours Salary Non-Exempt (we own you 50 hours a week vs. 40 - Make new child care arrangements, etc.)
-February sucks, the pay periods are shorter and it affected many (500 associates at the time)
-DOL disappeared and we were instructed to stay low

It was one of the many ways they squeezed our lemon. Large corporations are tasked with lowering attrition, move and shake to make the banks think our debt is lower and feed the machine via transitions, etc.

It was what it was.

reply to post by ownbestenemy

The construction industry is heavily contracted and gaining employment is a rarity, but being an independent contractor is much more prevalent.

In which case it would be required that the contractor have a contractor's license, would it not? Carry their own liability and worker's comp insurance?

reply to post by CranialSponge


There isn't anything nefarious about this though; especially since the OP has seen it happen in the construction sector.

Many small construction companies don't employ much more than they need to operate their business and then sub-contract out the areas in which they need completed. It is a much more economical means of operating within the industry.

For example: my father was a general contractor and employed only himself. When he landed a bid he would reach into his deep pool of independent contractors to perform certain aspects of the job. This led to more money for all parties and larger freedom of choice for each party.

This is most evident especially in residential construction as the OP has suggested.

Originally posted by Phage
reply to post by ownbestenemy

 

The construction industry is heavily contracted and gaining employment is a rarity, but being an independent contractor is much more prevalent.

In which case it would be required that the contractor have a contractor's license, would it not? Carry their own liability and worker's comp insurance?

edit on 2/4/2012 by Phage because: (no reason given)

I am not sure about the sub-contracted work and where liability falls. I would have to ask my father. But he, as a general contractor of course had his license. He only hired others who too had theirs and also who would not financially tank my dad's business.

I didn't realize that an employee could sue if being paid on 1099. I don't know how hard or realistic that is to pull off. I worked for someone for a few years that paid me on 1099 but I should have been paid on a w-2. I worked, at times, 70 hours a week and was expected to jump when they said jump. Now they paid me really well, which is why I did what I did - but we had a big difference in opinion when I took a side job (totally unrelated to my work with them) they didn't like because it might limit my availability. (I was working 8am - 10 pm 6 days a week! GEEZ!) I was not to work for ANYONE but them - and when I complained to my friend, he's the one that even let me know that wasn't cool if I was 1099. I was really young and dumb, and just too focused on what I did and not things like w2s and 1099s.

I don't want to get in specifics of who/what and make an accusation against someone specific. I just see it a lot because I always watch the ads and talk to a lot of folks b/c I am trying to help my husband find work, and, having lived it, I think I know it when I see it.

reply to post by Phage


Well...everyone thinks construction is like ....job site construction. That is heavily contracted.
But no, that's not what I mean. These days, a whole lot of construction is pre-fab. It's no different than any other plant that makes widgets. You work on an assembly line, making windows, doors, roofs, trusses, blueprints, designs, ect.

And yes - telecom and tv. One sat company is using a lot of 1099 workers. I don't know what their set up is with all that, but they are indeed using a lot of 1099s for people doing install work, ect. Other cable companies hire people on w2s for that same sort of thing.

reply to post by ownbestenemy

I suppose it depends on the state but here it is required that anyone who does construction work must either be employed by a licensed contractor or have a license themselves. Besides being the law, it offers the owner some recourse in the case of substandard or uncompleted work.

Liability insurance is also required to obtain a license (for the same reason). Worker's comp has a big hole in the law though. If there are no employees, if the owner is a sole proprietor and does the work, worker's comp is not required. This leaves the general or owner wide open for a nasty law suit. Say I hire a sole proprietor painter, say he falls off his ladder and breaks his back. Guess who is going to get sued.

reply to post by hadriana

If you are working in someone's shop or factory there is no way you can be legally considered an independent contractor.

reply to post by hadriana


1099 is appropriate for skilled professions or labor which can be given set objectives. And yes, employers have been doing this for a while. I've also noticed an increase in laying off American workers, and rehiring foreign exchange students to do the same job.

Haven't been behind a tax desk in 3 years, but, yes, I saw a LOT of 1099 abuse before I left. It's NOT state by state, it's determined by the IRS. If the company controls how, when and where you do your job, you are probably not an independent contractor. It's a HUGE issue, because as an independent contractor, the "employee" is required to pay both halves of social security and medicare. So instead of 7.62% FICA, the self employed has to pay 15.24%.

An employee can request a determination of status if they think their company is screwing them around by filing a form SS-8 with the IRS. My dad fought this once and won.

Independent contractor defined: www.irs.gov...=179115,00.html

Self employed or employee?: www.irs.gov...=99921,00.html

SS-8 Request for Determination form: www.irs.gov...