4 ms·

> "The illegal bit isn’t the pay structure but the treatment of a contractor as an employee." What's illegal here exactly? 1. US Business Entity conducts busi

> "The illegal bit isn’t the pay structure but the treatment of a contractor as an employee." What's illegal here exactly? 1. US Business Entity conducts business with EU Business Entity. 2. The person (let's call them a contractor) is employed as a full-time employee for the EU Business Entity. They also function as the owner of the EU Business Entity. 3. US Business Entity, EU Business Entity and the contractor - all pay their respective taxes as required by the laws in their jurisdictions. This is the very foundation of how consultancies operate, for example: 1. The consultancy is the employer, the consultant the employee. 2. The consultant gets hired out to different clients, to work on different projects. 3. The consultant's salary gets paid by the consultancy, not the client. 4. The client only ever conducts business with the consultancy.

meheleventyone 4y ago
If the company contracting allows the contracting entity to maintain the autonomy and flexibility required then nothing. Just wrapping people in shell companies doesn’t usually avoid the legal tests for whether someone is being treated as an employee or contractor AFAIK.
- csmpltn 4y ago
  > "Just wrapping people in shell companies doesn’t usually avoid the legal tests for whether someone is being treated as an employee or contractor AFAIK." What does "wrapping people in shell companies" mean? As a person, you're either employed for a "shell company", in which case you've signed a contract and you get paid a salary - or you're the owner of a "shell company", in which case you get to choose how to manage the company's funds. You can also be both, simultaneously. You'll be paying taxes either way. Paying yourself a salary is a taxable event. I'm still not sure what's illegal here?
  - Luc 4y ago
    https://en.wikipedia.org/wiki/False_self-employment https://en.wikipedia.org/wiki/False_self-employment
    - bitL 4y ago
      That's within a single country. There is a qualitative difference between cross-border business relationships and intra-country ones.
      - deleted 4y ago
        [deleted]
    - csmpltn 4y ago
      > "False self-employment is a situation in which somebody registered as self-employed, a freelancer, or a temp is de facto an employee carrying out a professional activity under the authority and subordination of another company. Such false self-employment is often a way to circumvent social welfare and employment legislation, for example by avoiding employer's social security and income tax contributions." Could you kindly explain how this definition of "false self-employment" is in any way relevant to the situation I just described in my original comment? I'm struggling to see it myself. What about the specific situation I described implies circumvention of social welfare, or employment legislation, for example?
      - sarchertech 4y ago
        A company wants an employee, they plan on treating this person as an employee. However the company doesn’t want to pay the additional costs required by regulation. Payroll taxes, unemployment insurance, dealing with tax withholding, overtime where applicable, family leave requirements etc… So they hire a contractor instead and pay them as a 1099 contractor, or the contractor sets up an LLC and they pay the LLC, or an S-corp. Doesn’t matter how they pay them, if they treat them as an employee (there’s a 20 part test) they are a de facto employee and it’s false self-employment.
        deleted 4y ago
        [deleted]
        csmpltn 4y ago
        It's the LLC's or S-Corp's responsibility to deal with everything you've mentioned, not your client's. Your client is simply purchasing a service from your LLC or S-Corp, with a contract. The contract must not stand in violation of your local tax and employment laws. It's a standard case of one company (a third-party) purchasing the services of another (a company you simultaneously both own, and are employed at).
  - sarchertech 4y ago
    What you’re talking about happens in the US as well, and courts have held that whether you are billing through a corporation or not doesn’t impact whether you are a de facto employee. e.g., the owner of an LLC who bills through the LLC can still be found to be a de facto employee. It doesn’t matter that you pay income taxes, what matters is that the employer isn’t paying payroll taxes, withholding income taxes, paying unemployment insurance etc.
    - csmpltn 4y ago
      > "It doesn’t matter that you pay income taxes, what matters is that the employer isn’t paying payroll taxes, withholding income taxes, paying unemployment insurance etc." I think we're talking past eachother here. The employer, in this case, is you (a company you own). You're also the only employee (a private person employed by that same company you own). If your company decides to pay you a salary, your company must also deduct taxes, social security, benefits, payroll taxes, income taxes, pension, etc. Your company must ensure the terms of your employment are compliant with all laws and regulations. Your client enters into a contractual agreement to buy a service from your company. They're not responsible for your company's compliance with local laws and regulations. Your company will be charging the client a certain rate (gross), which is usually worked backwards from the "net salary" you as an employee want to make.
      - sarchertech 4y ago
        What you’re describing in the US and in the other jurisdictions I’m aware of essentially doesn’t exist. The vast majority of single person corporations are pass through entities. There’s no income tax withholding , no salary, no corporate tax etc… However even in the very rare case where you setup a non pass through entity, if your company only has one source of income and that is you the owner operating as a de facto employee of another corporation, in most jurisdictions that is false self employment. What you’re describing is an often attempted loophole, and there’s plenty of precedent that it doesn’t hold up.
        csmpltn 4y ago

meheleventyone 4y ago

If the company contracting allows the contracting entity to maintain the autonomy and flexibility required then nothing. Just wrapping people in shell companies doesn’t usually avoid the legal tests for whether someone is being treated as an employee or contractor AFAIK.

csmpltn 4y ago
> "Just wrapping people in shell companies doesn’t usually avoid the legal tests for whether someone is being treated as an employee or contractor AFAIK." What does "wrapping people in shell companies" mean? As a person, you're either employed for a "shell company", in which case you've signed a contract and you get paid a salary - or you're the owner of a "shell company", in which case you get to choose how to manage the company's funds. You can also be both, simultaneously. You'll be paying taxes either way. Paying yourself a salary is a taxable event. I'm still not sure what's illegal here?
- Luc 4y ago
  https://en.wikipedia.org/wiki/False_self-employment https://en.wikipedia.org/wiki/False_self-employment
  - bitL 4y ago
    That's within a single country. There is a qualitative difference between cross-border business relationships and intra-country ones.
    - deleted 4y ago
      [deleted]
  - csmpltn 4y ago
    > "False self-employment is a situation in which somebody registered as self-employed, a freelancer, or a temp is de facto an employee carrying out a professional activity under the authority and subordination of another company. Such false self-employment is often a way to circumvent social welfare and employment legislation, for example by avoiding employer's social security and income tax contributions." Could you kindly explain how this definition of "false self-employment" is in any way relevant to the situation I just described in my original comment? I'm struggling to see it myself. What about the specific situation I described implies circumvention of social welfare, or employment legislation, for example?
    - sarchertech 4y ago
      A company wants an employee, they plan on treating this person as an employee. However the company doesn’t want to pay the additional costs required by regulation. Payroll taxes, unemployment insurance, dealing with tax withholding, overtime where applicable, family leave requirements etc… So they hire a contractor instead and pay them as a 1099 contractor, or the contractor sets up an LLC and they pay the LLC, or an S-corp. Doesn’t matter how they pay them, if they treat them as an employee (there’s a 20 part test) they are a de facto employee and it’s false self-employment.
      - deleted 4y ago
        [deleted]
      - csmpltn 4y ago
        It's the LLC's or S-Corp's responsibility to deal with everything you've mentioned, not your client's. Your client is simply purchasing a service from your LLC or S-Corp, with a contract. The contract must not stand in violation of your local tax and employment laws. It's a standard case of one company (a third-party) purchasing the services of another (a company you simultaneously both own, and are employed at).
- sarchertech 4y ago
  What you’re talking about happens in the US as well, and courts have held that whether you are billing through a corporation or not doesn’t impact whether you are a de facto employee. e.g., the owner of an LLC who bills through the LLC can still be found to be a de facto employee. It doesn’t matter that you pay income taxes, what matters is that the employer isn’t paying payroll taxes, withholding income taxes, paying unemployment insurance etc.
  - csmpltn 4y ago
    > "It doesn’t matter that you pay income taxes, what matters is that the employer isn’t paying payroll taxes, withholding income taxes, paying unemployment insurance etc." I think we're talking past eachother here. The employer, in this case, is you (a company you own). You're also the only employee (a private person employed by that same company you own). If your company decides to pay you a salary, your company must also deduct taxes, social security, benefits, payroll taxes, income taxes, pension, etc. Your company must ensure the terms of your employment are compliant with all laws and regulations. Your client enters into a contractual agreement to buy a service from your company. They're not responsible for your company's compliance with local laws and regulations. Your company will be charging the client a certain rate (gross), which is usually worked backwards from the "net salary" you as an employee want to make.
    - sarchertech 4y ago
      What you’re describing in the US and in the other jurisdictions I’m aware of essentially doesn’t exist. The vast majority of single person corporations are pass through entities. There’s no income tax withholding , no salary, no corporate tax etc… However even in the very rare case where you setup a non pass through entity, if your company only has one source of income and that is you the owner operating as a de facto employee of another corporation, in most jurisdictions that is false self employment. What you’re describing is an often attempted loophole, and there’s plenty of precedent that it doesn’t hold up.
      - csmpltn 4y ago