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comment on W2 and 1099 employee / follow up on Employee perks
August 10, 2018
comment on can sales person be W-2 and 1099 at same time from August 2, 2018 article
    I read the inquiry from “name withheld for obvious reasons” in your August 2, 2018 thread. Name Witheld has a ‘great salesman that is employed as a 1099 subcontractor and a full time W-2 employee.’ You correctly advised him that he is not a subcontractor. My question is whether this person even qualifies as a sales affiliate. The IRS only allows a company to issue a 1099 and a w-2 to the same worker when the work performed as a contractor is significantly different than the work performed as an employee. If his receptionist also operates a photography studio and Name Witheld contracts with her to take company pictures for a brochure, that would typically qualify. The IRS would look to see if the receptionist had other customers and did other work in addition to the work for Witheld. The danger here is that this salesperson may be performing tasks that are not significantly different. If the tasks are even remotely similar to the employee’s normal responsibilities, the IRS is going to recharacterize the entire relationship as an employee/employer relationship. Name Witheld has probably gotten away with this in the past because the payee has an different tax ID number, but, if he is audited, the IRS is going to see through this immediately. If the ‘contractor’ has his own company, with its own tax id number, is his company properly licensed. If this is happening in a state which requires licensing and the ‘contractor’ is operating under the employer’s license, then the IRS is going to question any other status than employee. Mr. Witheld states that the ‘contactor’ does not have a New York license. If he is unlicensed, I question whether he is truly operating an independent company. The other troubling statement is that the ‘contractor’ instructs customers to “make out the deposit check to his company.” Why would this be necessary. The writer states that there has never been an issue, but how would he know. It is not unusual for a renegade salesperson to represent several different companies and sell the ‘paper’ to the high bidder. How do we know that this isn’t happening here? As a business owner I would be concerned that this is establishing a business relationship between the salesperson and the customer. 
    As I have mentioned many times, the IRS believes that over 60% of employers are misclassifying their employees. Changes to the Tax Code have freed up thousands of IRS auditors to pursue other tax issues, and the IRS has announced that they consider employee misclassification as a hot topic. Properly classifying an employee does not cost much more. The employment taxes must be paid whether by the employer (and the employee through payroll deduction), or by the contractor through self employment taxes. 
If the IRS catches an employer misclassifying employees, the payments are steep, as much as 100% of the unpaid tax. If your sales person truly is a sales affiliate get Ken’s agreements and document the relationship. If the only service provided is sales of alarm systems then pick one treatment, employee or sales affiliate, and stick with it.
Mitch Reitman
Reitman Consulting Group
Fort Worth, TX 
follow up on Employee perks from August 2, 2018 article
Regarding the ‘employee systems’ – FYI the manufacture DMP has a ‘special’ friends & family discount for alarm company employees. We have been using this quite successfully!
And of course the monitoring is at the ‘Friends & Family’ rate.
Joseph Pfefer
    There is nothing wrong with employee perks, but the problem arises when the employment is terminated and the ex-employee thinks the perks should continue, post employment. Make sure your employees understand that perks end when the employment ends.
    Also, you need the same contractual protection with your employees that you need with all your other customers. Keep in mind that your employee's expectations regarding your services will aline more with your customers than your expectations. In other words, they will be looking for prevention rather than detection, and so will their insurance company when they come looking for you in subrogation. 

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
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516 747 6700