hiring employees as w2 independent contractor to avoid taxes/insurance.

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taxes are eating profits alive in California. Being competitive in los angeles is difficult. Does anybody know of a juggernaut to slide under the irs radar in a creative but legal way when it comes to hiring employee? Avoiding payroll taxes and workers comp insurance? Any advice or ideas would be appreciated .....

Hans konrad , redondo beach , ca......
 
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iwire

Moderator
Staff member
Location
Massachusetts
taxes are eating profits alive in California. Being competitive in los angeles is difficult. Does anybody know of a juggernaut to slide under the irs radar in a creative but legal way when it comes to hiring employee? Avoiding payroll taxes and workers comp insurance? Any advice or ideas would be appreciated .....

Hans konrad , redondo beach , ca...... Wire-pros.com




Can someone help me screw my workers over ...:roll:
 
Location
NE (9.06 miles @5.9 Degrees from Winged Horses)
Occupation
EC - retired
Can someone help me screw my workers over ...:roll:
I am a rich EC, and that is kind of what it sounds like even from my lofty position.

As understaffed as the IRS is you will be unlucky to be caught before you die. Maybe it's worse, or better, in CA depending on your point of view.

I know a GC that pays his "subcontractors" $18 per hour but they ride with him to the job and do not get paid until they arrive. So those hours he has to get parts, they get nothing. Sounds like a real deal for someone.
 

petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
The IRS and states just do not consider any "employee" to be an independant contractor under any circumstances.

A person can be one or the other but not both simultaneously.

There are various tests states and the IRS use to determine whether an individual is truly an independant contractor or an employee.

There is nothing inherently wrong with using subcontractors that are legitimately subcontractors. But trying to claim someone is a subcontractor who is really an employee is a good way to get in a world of hurt financially, and often retroactively.

That is not to say that people do not use this as a dodge and get away with it. Cheating on one's taxes is not uncommon. But, people also get caught doing so.
 

Fulthrotl

~Autocorrect is My Worst Enema.~
A person can be one or the other but not both simultaneously.

There are various tests states and the IRS use to determine whether an individual is truly an independent contractor or an employee.

There is nothing inherently wrong with using subcontractors that are legitimately subcontractors. But trying to claim someone is a subcontractor who is really an employee is a good way to get in a world of hurt financially, and often retroactively.

all of that, a +1.

in the people's republic of socal, you get caught doing this, and you are so screwed.

your "subcontractor" falls off a ladder, and goes to the hospital. he is there with a
spinal bruise.

your soon to be defunct company can now pay ALL of his medical expenses, PLUS
the overburden state fund attaches for their trouble, about 40%.

and as the state fund has now has an issue with you, your C-10 will be flagged and suspended.
CSLB shares info with state fund.

CSLB also shares info with the state franchise tax board. expect an audit. penalties are
normally 100% of the tax shortfall in this state. don't ask how i know this.

the franchise tax board shares info with the IRS. the penalty there for a shortfall is 100%
of the shortfall, and interest at 28%, on the shortfall and the penalty, from the time the
shortfall occurred, not from the time of assessment.

don't ask how i know that, either.

now, if you are a sole proprietor, you are on the hook for all this, even if out of business.
if you are a corporation, both fed and state can breach the corporate wall, and attach your
assets personally, if you are an officer of the corporation.

however, if you are assessed all of this, and have filed your tax returns in a timely manner,
37 months after the assessment of said taxes and penalties, when they are recorded with
the clerk of the court in the county you operated in, you may have the liabilities discharged
with a bankruptcy.

article 602, subparagraph (C) note three of the bankruptcy code permits this.
it is not common knowledge, but it is a point of law.

however, be advised that the state of california does not recognize that statute, and will
simply seize any assets they find, without due process, and unapologetically.

welcome to calif. you've been warned.

the aforementioned information cost me $1,950,000.00 to learn. it's yours for free.

additional note:

a quick google, pulls up your name, c-10 license info, license status, workers comp status,
and this conversation, so it's all in the public domain at this point.

sometimes a unusually spelled name isn't a good thing to have up on the net, tied to
a discussion like this.
 
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ceb58

Senior Member
Location
Raeford, NC
The IRS and states just do not consider any "employee" to be an independant contractor under any circumstances.

A person can be one or the other but not both simultaneously.

There are various tests states and the IRS use to determine whether an individual is truly an independant contractor or an employee.

There is nothing inherently wrong with using subcontractors that are legitimately subcontractors. But trying to claim someone is a subcontractor who is really an employee is a good way to get in a world of hurt financially, and often retroactively.

That is not to say that people do not use this as a dodge and get away with it. Cheating on one's taxes is not uncommon. But, people also get caught doing so.

If you tell the person or persons when and where to show up, how to do the work and when to leave they , under the IRS rules, are a bonafide employee and must be treated as such. Now why do you want to screw over the people that work for you, put your self and your co. in that much liability and add the tax burden on the other ligament contractors?
 

Sierrasparky

Senior Member
Location
USA
Occupation
Electrician ,contractor
all of that, a +1.

in the people's republic of socal, you get caught doing this, and you are so screwed.

your "subcontractor" falls off a ladder, and goes to the hospital. he is there with a
spinal bruise.

your soon to be defunct company can now pay ALL of his medical expenses, PLUS
the overburden state fund attaches for their trouble, about 40%.

and as the state fund has now has an issue with you, your C-10 will be flagged and suspended.
CSLB shares info with state fund.

CSLB also shares info with the state franchise tax board. expect an audit. penalties are
normally 100% of the tax shortfall in this state. don't ask how i know this.

the franchise tax board shares info with the IRS. the penalty there for a shortfall is 100%
of the shortfall, and interest at 28%, on the shortfall and the penalty, from the time the
shortfall occurred, not from the time of assessment.

don't ask how i know that, either.

now, if you are a sole proprietor, you are on the hook for all this, even if out of business.
if you are a corporation, both fed and state can breach the corporate wall, and attach your
assets personally, if you are an officer of the corporation.

however, if you are assessed all of this, and have filed your tax returns in a timely manner,
37 months after the assessment of said taxes and penalties, when they are recorded with
the clerk of the court in the county you operated in, you may have the liabilities discharged
with a bankruptcy.

article 602, subparagraph (C) note three of the bankruptcy code permits this.
it is not common knowledge, but it is a point of law.

however, be advised that the state of california does not recognize that statute, and will
simply seize any assets they find, without due process, and unapologetically.

welcome to calif. you've been warned.

the aforementioned information cost me $1,950,000.00 to learn. it's yours for free.

additional note:

a quick google, pulls up your name, c-10 license info, license status, workers comp status,
and this conversation, so it's all in the public domain at this point.

sometimes a unusually spelled name isn't a good thing to have up on the net, tied to
a discussion like this.

1.9 mil to learn? Wow
 

69gp

Senior Member
Location
MA
taxes are eating profits alive in California. Being competitive in los angeles is difficult. Does anybody know of a juggernaut to slide under the irs radar in a creative but legal way when it comes to hiring employee? Avoiding payroll taxes and workers comp insurance? Any advice or ideas would be appreciated .....

Hans konrad , redondo beach , ca......


In MA when you pull an electrical permit you need to show proof of insurance including workers comp. There is an option to have a homeowner opt out of you having insurance. But if like me you do commercial and industrial work you need to have it. If you sub work out which I never do then each person that you sub out to would be required to pull a permit for the work they do. If you hired them as a sub would you want to be responsible for their work? if you hired them and 1099 them and they got hurt your @ss is in the sling. Lawyers, Lawyers, Lawyers they will be on you like you know what.

On top of that if I was a customer I would not hire anyone who subs out his own trade.

As for hiding under the radar I am sure you can do it if your dealing in cash. If your trying to run a legit bushiness and not pay the taxes and insurance then eventually you will get caught. Its pay now or pay even more latter.

And nothing personnel here but its people who run there business like they way you want to are what makes it hard for people who run a legitimate business. I have put my time in on the job and can go the distance when times get slow. There are a lot of companies that start up get a lot of work and before you know it there gone. Do yourself a favor and stay legit, pay the insurance and taxes and you will not regret it in the end.
 
Last edited:

gadfly56

Senior Member
Location
New Jersey
Occupation
Professional Engineer, Fire & Life Safety
all of that, a +1.

in the people's republic of socal, you get caught doing this, and you are so screwed.

your "subcontractor" falls off a ladder, and goes to the hospital. he is there with a
spinal bruise.

your soon to be defunct company can now pay ALL of his medical expenses, PLUS
the overburden state fund attaches for their trouble, about 40%.

and as the state fund has now has an issue with you, your C-10 will be flagged and suspended.
CSLB shares info with state fund.

CSLB also shares info with the state franchise tax board. expect an audit. penalties are
normally 100% of the tax shortfall in this state. don't ask how i know this.

the franchise tax board shares info with the IRS. the penalty there for a shortfall is 100%
of the shortfall, and interest at 28%, on the shortfall and the penalty, from the time the
shortfall occurred, not from the time of assessment.

don't ask how i know that, either.

now, if you are a sole proprietor, you are on the hook for all this, even if out of business.
if you are a corporation, both fed and state can breach the corporate wall, and attach your
assets personally, if you are an officer of the corporation.

however, if you are assessed all of this, and have filed your tax returns in a timely manner,
37 months after the assessment of said taxes and penalties, when they are recorded with
the clerk of the court in the county you operated in, you may have the liabilities discharged
with a bankruptcy.

article 602, subparagraph (C) note three of the bankruptcy code permits this.
it is not common knowledge, but it is a point of law.

however, be advised that the state of california does not recognize that statute, and will
simply seize any assets they find, without due process, and unapologetically.

welcome to calif. you've been warned.

the aforementioned information cost me $1,950,000.00 to learn. it's yours for free.

additional note:

a quick google, pulls up your name, c-10 license info, license status, workers comp status,
and this conversation, so it's all in the public domain at this point.

sometimes a unusually spelled name isn't a good thing to have up on the net, tied to
a discussion like this.

"Ouch" is just so inadequate.
 

curt swartz

Electrical Contractor - San Jose, CA
Location
San Jose, CA
Occupation
Electrical Contractor
If you are running your business legitimately changing some of you guys from payroll to contractors is not going to save you money unless your employees are not very intelligent. In California they will be required to maintain an active contractors license to sub contract to you. Since they are now a sub contractors they will have to carry their own liability insurance. They will be required to pay all of the taxes you are trying to avoid paying. If they get injured they will not be covered under your WC insurance. Your employee turned subcontractor is not going to eat these risks and costs. They will want you to pay them substantially more $$ to cover all of their expenses. In the end it will probably cost you more to pay them as a sub then have them on payroll. WC for electricians in California is relatively inexpensive compared to many other trades.
 

Sierrasparky

Senior Member
Location
USA
Occupation
Electrician ,contractor
I don't know if the OP is for real or not.
He lists his name and that name is to an
Expired license.

Very ODD.
 

Fulthrotl

~Autocorrect is My Worst Enema.~
remove vulgarity

remove vulgarity

"Ouch" is just so inadequate.

all the stuff i put in there about taxes, penalties, chapter 7's and stuff,
was not learned during contracting. it was learned during my first
marriage, to a woman who had an ex who had a shale oil tax shelter.

i had to steer *her* thru a chapter 7 BK, while we were married,
without filing one myself. your financials get trashed, and you don't
get the relief of the bankruptcy. it's worse than filing, trust me.
her bankruptcy was $1.9M, as the result of a tax scam that saved
$5,200 in taxes in '81, and $6,000 in '82. we were married in '86,
and by '90, it had snowballed to $2M.

the stuff about running without workers comp, that is simple public
knowledge, and i've seen enough people over the years self destruct
on that, you'd have to be crazy to do it.

i'm married to a no nonsense lady whose tummy wouldn't feel right
if we didn't report everything. i report cash service calls,
there is zero unregistered software on my computer. a wife with a
tummy that doesn't feel right, you just don't mess around with that sort of pain.

this years taxes, i have $450,000 in income that nobody even bothered
to 1099 me on. it all gets reported, including the stuff from the canadian
corporation that i do work for.

i sleep well at night, and my spouse has a calm tummy. all is well.
 
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Electric-Light

Senior Member
taxes are eating profits alive in California. Being competitive in los angeles is difficult. Does anybody know of a juggernaut to slide under the irs radar in a creative but legal way when it comes to hiring employee? Avoiding payroll taxes and workers comp insurance? Any advice or ideas would be appreciated .....

Hans konrad , redondo beach , ca......

Why don't you pay a certified public account? They're certified consultants whose profession is to provide just what asked for and it takes special knowledge and training. You're looking for advise to increase the chunk of money YOU get to keep and we're not your servants who work to increase your pocket book.
 

petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
If you are having trouble competing, that is maybe a good sign. That is the way the marketplace works. If you were not competitive you would be out of business. Either you would be overpriced and get little work, or underpriced and get unprofitable work. Either situation will eventually lead you into closing up shop.
 

romex jockey

Senior Member
Location
Vermont
Occupation
electrician
The old shtick was to 'sub' out to each other.

As long as it was all under a registered biz , the sub was a write off

That lasted for a dog's age, until the insurance cabal decided it was a loosing proposition

So they legislated , and every worker (depending on state ) has to have WC , and they'll audit you at the years end to make sure you have.

End result is, you're either an employee getting a W2, or a regisitered biz with a WC policy getting a 1099

I miss the old days....

~RJ~
 

iwire

Moderator
Staff member
Location
Massachusetts
The old shtick was to 'sub' out to each other.

As long as it was all under a registered biz , the sub was a write off

That lasted for a dog's age, until the insurance cabal decided it was a loosing proposition

So they legislated , and every worker (depending on state ) has to have WC , and they'll audit you at the years end to make sure you have.

End result is, you're either an employee getting a W2, or a regisitered biz with a WC policy getting a 1099

I miss the old days....

~RJ~

Yeah, workers getting hurt without insurance coverage, those were some good times.
 

kwired

Electron manager
Location
NE Nebraska
In MA when you pull an electrical permit you need to show proof of insurance including workers comp. There is an option to have a homeowner opt out of you having insurance. But if like me you do commercial and industrial work you need to have it. If you sub work out which I never do then each person that you sub out to would be required to pull a permit for the work they do. If you hired them as a sub would you want to be responsible for their work? if you hired them and 1099 them and they got hurt your @ss is in the sling. Lawyers, Lawyers, Lawyers they will be on you like you know what.

On top of that if I was a customer I would not hire anyone who subs out his own trade.

As for hiding under the radar I am sure you can do it if your dealing in cash. If your trying to run a legit bushiness and not pay the taxes and insurance then eventually you will get caught. Its pay now or pay even more latter.

And nothing personnel here but its people who run there business like they way you want to are what makes it hard for people who run a legitimate business. I have put my time in on the job and can go the distance when times get slow. There are a lot of companies that start up get a lot of work and before you know it there gone. Do yourself a favor and stay legit, pay the insurance and taxes and you will not regret it in the end.

Subbing out your own trade is being done more and more these days. General electrical work by EC's maybe not so much, but you do find EC's subbing out fire alarm, security, communications, or other specialty areas. I see long time general construction companies that maybe "do it all" on some smaller projects but sub out roofers, drywallers, masons, etc. for larger projects.

If you are running your business legitimately changing some of you guys from payroll to contractors is not going to save you money unless your employees are not very intelligent. In California they will be required to maintain an active contractors license to sub contract to you. Since they are now a sub contractors they will have to carry their own liability insurance. They will be required to pay all of the taxes you are trying to avoid paying. If they get injured they will not be covered under your WC insurance. Your employee turned subcontractor is not going to eat these risks and costs. They will want you to pay them substantially more $$ to cover all of their expenses. In the end it will probably cost you more to pay them as a sub then have them on payroll. WC for electricians in California is relatively inexpensive compared to many other trades.
Agreed. In most instances I think you need to request insurance certificates from your subs. If the government doesn't make you your insurance carrier will, and if your subs are not carrying adequate insurance your premium will be adjusted to cover them - may as well have them as employees for that instance. For payroll - you do have to pay 1/2 of social security, medicare taxes, but if they are subcontractors they have to pay the second half normally paid by an employer, and unless they are not smart enough to realize this they will want some more pay to help compensate, if they plan to stay working at/for one place they will figure it out eventually when they have to file 1040 schedule C to report that income.
 
Also being in SoCal, when I have jobs where I need manpower and they don't need to interface with the customer, I use temps. Decton staffing has provided me some good guys for various jobs, at reasonable rates (guys who are WC and GL insured for far cheaper than you can bring someone on for).

If you're using guys under the table because you can't afford to find a legal way to do it, you need to re-evaluate your business model, especially in SoCal.
 
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