5 ms·

Why not hire people as contractors? So far it worked great for us.

secondbreakfast 5y ago
> The additional complexity and costs of having non-local employees can absolutely be prohibitive, leading some companies to just abuse 1099 status.
- cigaser 5y ago
  Is it about medical insurance or something like that? I do not understand why it would be abuse.
  - hasmolo 5y ago
    so as a 1099 the employee has to pay all of the standard taxes a business would pay and they’re entitled to far less of the employment social safety net. when you 1099 an employee you force them to bear your tax and benefit burden. people who take the 1099 job do so because they don’t have a w2 offer or don’t understand. a 1099 has far less net profit at the same salary as w2. this is how contractors maker more money but have less real income
    - cigaser 5y ago
      Employer should pass tax savings to employee. Maybe also pass savings from not running local branch. I looked up 1099 calculator. For Arizona total self employed tax is about 20%. That seems quite fair. In EU I prefer self-employment. I can put car, home office and even babysitting into expenses and save on taxes.
      - shagie 5y ago
        Even with passing on the tax savings, there's also things like health insurance and some form of retirement matching. An employer paying a group rate for health insurance will pay less per person than an individual paying an individual rate. Even if the employer were to pass on the savings of not having the person in the group health insurance, the 1099 contractor would need to pay more to get the same coverage. And beyond that there are things like a 401k matching or a pension that a full time employee has that a contractor doesn't have access to.
        ghaff 5y ago
        Health insurance is a big one and a lot of people just aren't going to take a job that doesn't come with a good health insurance plan. Many companies also offer things like dental insurance, short term disability, and long term disability. Individuals (may) be able to obtain some of those things on their own but, as you say, the cost may be prohibitive. You can at least get health insurance with pre-existing conditions now but it can be very expensive. You may not be able to get disability insurance. Being a 1099 contractor is mostly not a good deal for someone who actually wants a stable long-term full-time job.
      - JAlexoid 5y ago
        European model is very different to US. I used to do contracting all over EU.... and it was pure bliss. Even with VAT "complexities", it's still about a million times easier to do taxes as a contractor in EU/UK, than it is to do your own taxes in US. The final thing about contracting in US is that average employer cost of health insurance is over $20k per employee. If you don't fall under someone else's employer sponsored healthcare plan, your self employment income will be greatly diminished. (In US freelancers don't get huge bumps in hourly rates, just because they're not full time benefited employees)
    - texasbigdata 5y ago
      So to be specific there’s a very negligible tax arbitrage which actually favors the employee not the employer but conceptually in the compliance case described above the employer would actually be net neutral to paying the tax adjusted rate (aka their outflow) to the employee and it’s not set out to be some great scam.
  - secondbreakfast 5y ago
    There are rules around who's allowed to be classified as a 1099. If you're employed full time and told how to perform your job, the government is likely going to determine you're a W2. This is likely what OP meant by "abusing" the 1099 status.
- deleted 5y ago
  [deleted]
woeirua 5y ago
The vast, overwhelming majority of "independent" contractors on 1099s do not actually qualify for that status as defined by the law. Most of them should be W2 employees per the law. The only reason most companies get away with this arrangement is because the government has refused to enforce it except in egregious cases, and ignorance on the part of the employee. But it's a pretty tenuous situation. See Uber in CA.

> The additional complexity and costs of having non-local employees can absolutely be prohibitive, leading some companies to just abuse 1099 status.

cigaser 5y ago
Is it about medical insurance or something like that? I do not understand why it would be abuse.
- hasmolo 5y ago
  so as a 1099 the employee has to pay all of the standard taxes a business would pay and they’re entitled to far less of the employment social safety net. when you 1099 an employee you force them to bear your tax and benefit burden. people who take the 1099 job do so because they don’t have a w2 offer or don’t understand. a 1099 has far less net profit at the same salary as w2. this is how contractors maker more money but have less real income
  - cigaser 5y ago
    Employer should pass tax savings to employee. Maybe also pass savings from not running local branch. I looked up 1099 calculator. For Arizona total self employed tax is about 20%. That seems quite fair. In EU I prefer self-employment. I can put car, home office and even babysitting into expenses and save on taxes.
    - shagie 5y ago
      Even with passing on the tax savings, there's also things like health insurance and some form of retirement matching. An employer paying a group rate for health insurance will pay less per person than an individual paying an individual rate. Even if the employer were to pass on the savings of not having the person in the group health insurance, the 1099 contractor would need to pay more to get the same coverage. And beyond that there are things like a 401k matching or a pension that a full time employee has that a contractor doesn't have access to.
      - ghaff 5y ago
        Health insurance is a big one and a lot of people just aren't going to take a job that doesn't come with a good health insurance plan. Many companies also offer things like dental insurance, short term disability, and long term disability. Individuals (may) be able to obtain some of those things on their own but, as you say, the cost may be prohibitive. You can at least get health insurance with pre-existing conditions now but it can be very expensive. You may not be able to get disability insurance. Being a 1099 contractor is mostly not a good deal for someone who actually wants a stable long-term full-time job.
    - JAlexoid 5y ago
      European model is very different to US. I used to do contracting all over EU.... and it was pure bliss. Even with VAT "complexities", it's still about a million times easier to do taxes as a contractor in EU/UK, than it is to do your own taxes in US. The final thing about contracting in US is that average employer cost of health insurance is over $20k per employee. If you don't fall under someone else's employer sponsored healthcare plan, your self employment income will be greatly diminished. (In US freelancers don't get huge bumps in hourly rates, just because they're not full time benefited employees)
  - texasbigdata 5y ago
    So to be specific there’s a very negligible tax arbitrage which actually favors the employee not the employer but conceptually in the compliance case described above the employer would actually be net neutral to paying the tax adjusted rate (aka their outflow) to the employee and it’s not set out to be some great scam.
- secondbreakfast 5y ago
  There are rules around who's allowed to be classified as a 1099. If you're employed full time and told how to perform your job, the government is likely going to determine you're a W2. This is likely what OP meant by "abusing" the 1099 status.
deleted 5y ago
[deleted]

woeirua 5y ago

The vast, overwhelming majority of "independent" contractors on 1099s do not actually qualify for that status as defined by the law. Most of them should be W2 employees per the law. The only reason most companies get away with this arrangement is because the government has refused to enforce it except in egregious cases, and ignorance on the part of the employee. But it's a pretty tenuous situation. See Uber in CA.