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I'm struggling to understand the difference between self employed workers/contractors, an non-employer owners - specifically, which am I? Some facts: - I own

I'm struggling to understand the difference between self employed workers/contractors, an non-employer owners - specifically, which am I? Some facts: - I own a CAD design service - I don't employ others (but this might be changing, see details below) - I don't work on contract - I only have one customer, for four years now - My revenue is around 30k/yr Considerations: I'm almost an employee for my customer. However I deliver work at a price I choose, and let the demand curve determine the resulting volume. This let's me survive on 4 to 8 hours of labor a week. This accommodation is necessary due to disability challenges I face, and would be hard to secure as an employee. I'm like a long term contractor for the customer. I charge more than their employees and get work only when there is overflow work. But I'm not on a contract or 1099 - the customer just sends me work and I invoice for it. Any contract between us is verbal, having to do with expectations on quality, lead time, and confidentiality. I could say I'm self employed, but the service has around 10K LOC of Python and C# CAD plugins I wrote to make us much faster and higher quality than ordinary workers here. I'm working on turning those tools into a product - so I own some IP and innovative processes that might make me an owner. I could say I'm a non-employer owner, but then I should be happier and more thriving! Jokes aside, I'm also working to build an efficient training curriculum for my tools, and am currently onboarding an intern - a promising CS grad student with a knack for both CAD design and algorithm design. I hope to sell work to new clients and upgrade the intern into an employee once they drive revenue, and into a worker-owner if they start helping me develop our tools. Ultimately I want the company to be a worker owned commune. So I could be transitioning into an employer? So which am I? Should I consider myself a non-employer owner making an effort to become an employer? Or am I just a self employed bum, which is what I feel like? Feel free to ask questions!

em-bee 3y ago
in an EU country you would most likely be forced to be an employee because it looks like you have a dependent relationship with your customer/employer. your disability makes that even more so. (protections for disabled employees are very strong in the EU) 1099 obviously does not apply, but even if it is just verbal, you are on a contract. but you are also building something to make you more independent, which is good. as for your last question, it really depends on how you like to work. i try to hire people because i like to work with others in a team. but my ability to hire depends on my success at getting contracts. i try to hire people who will benefit from working with me even though there is a higher risk that i can't keep them when i don't get new projects. ironically this works well in both a strong and a weak job market. in a strong job market i do not need to worry about letting go people because they will easily find another job. in a weak market the people i hire often don't have another option anyways. and if they do want to leave because they find something more stable then i am happy for them. what i don't do is get people to quit their existing job in order to work for me. you should make an effort to achieve your goals. whether that means becoming an employer depends on how well that aligns with your goals.
- em-bee 3y ago
  1099 obviously does not apply as per the other comments, clearly 1099 does apply. i only briefly looked at a short description and missed the key line "other income".
PopAlongKid 3y ago
The article uses some sloppy definitions, but best I can tell, you would be considered self-employed according to the article. What they conveniently leave out is the large portion of workers who are actually employees per common law, but both they and the "employer" agree to ignore the law because they think it benefits them to do so, and they likely won't be caught (but if they are, paying all the back payroll taxes with interest and penalties can be brutal). You seem to fit in this category. >But I'm not on a contract or 1099 - the customer just sends me work and I invoice for it. Assuming you mean the U.S. 1099-NEC tax form, you most certainly are "on 1099". If your client is not issuing one to you every year, they are breaking the law and subject to penalties.
- barfbagginus 3y ago
  Can you please explain why I should get a 1099 from the customer? Suppose I was a machine shop rebuilding engines for mechanic shops. They send me busted engines, and I send them working engines and invoices, which the customer pays. I'm on the hook for a warranty if the engine fails due to my mistake. There is no need for a 1099. Why is that? In my case, the client sends rough and noisy data from CMM devices, and I return smoothed and rationalized designs and invoices, and I'm financially on the hook for mistakes that cause rework. How am I legally different from the machine shop? Don't say single customer, since that seems irrelevant. I'm free to sell to other customers, including my customer's own competitors. If you can cite specific documents or laws, that will help. I would also like to know your reasoning for why you think I'm self employed rather than a NEO. You just state your view, but that doesn't explain the principles you're applying. I also don't understand your reasoning as to why you think I'm committing or helping my customer commit employer tax fraud. I own my own process, intellectual property, and material assets. I have to service my liabilities, I'm on the hook if I cause damages, and I am free to sell to competitors. I am clearly a sole proprietor. The question is how I fall in the article's classification. If you would please explain your reasoning behind these things, that would help me decide whether your analysis/implied advice is helpful to me. Thanks!
  - PopAlongKid 3y ago
    >Can you please explain why I should get a 1099 from the customer? Because it's the law. Per IRS instructions for Form 1099-NEC[0], which applies to your customer: File Form 1099-NEC, Nonemployee Compensation, for each person in the course of your business to whom you have paid the following during the year. • At least $600 in: 1. Services performed by someone who is not your employee (including parts and materials) (box 1); or 2. Payments to an attorney (box 1). (See Payments to attorneys, later.) >I would also like to know your reasoning for why you think I'm self employed rather than a NEO. You just state your view, but that doesn't explain the principles you're applying. I wasn't stating my view regarding NEO, I was trying to apply the sloppy, partly overlapping definitions provided by the article. The term "self-employed" is pretty well understood and referenced in the tax code; the term "NEO" is just something used in this article to draw some unclear (to me) distinction. If you talk to your state's employment development department, a tax professional, or a banker, they will probably not understand what you mean by "NEO". > I am clearly a sole proprietor. The rules are pretty well established, and come down to what tax people call "facts and circumstances". Per IRS Pub 15-A, "To determine whether an individual is an employee or an independent contractor under the common-law rules, the relationship of the worker and the business must be examined. In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered. Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties." See Pub 15-A for a more detailed discussion. > that would help me decide whether your analysis/implied advice is helpful to me I did not give you any advice, I was only trying to explain what the rules are and how they are applied. If you pay your full tax obligation including self-employment tax, and neither you nor the firm are ever audited, you will probably do just fine. You are missing out on employment benefits such as worker's comp, unemployment insurance, overtime, paid vacation/sick leave, etc. but you don't seem to mind. [0]I could look up the actual tax law but don't need to spend that time for this purpose.

em-bee 3y ago

in an EU country you would most likely be forced to be an employee because it looks like you have a dependent relationship with your customer/employer. your disability makes that even more so. (protections for disabled employees are very strong in the EU) 1099 obviously does not apply, but even if it is just verbal, you are on a contract. but you are also building something to make you more independent, which is good. as for your last question, it really depends on how you like to work. i try to hire people because i like to work with others in a team. but my ability to hire depends on my success at getting contracts. i try to hire people who will benefit from working with me even though there is a higher risk that i can't keep them when i don't get new projects. ironically this works well in both a strong and a weak job market. in a strong job market i do not need to worry about letting go people because they will easily find another job. in a weak market the people i hire often don't have another option anyways. and if they do want to leave because they find something more stable then i am happy for them. what i don't do is get people to quit their existing job in order to work for me. you should make an effort to achieve your goals. whether that means becoming an employer depends on how well that aligns with your goals.

em-bee 3y ago
1099 obviously does not apply as per the other comments, clearly 1099 does apply. i only briefly looked at a short description and missed the key line "other income".

PopAlongKid 3y ago

The article uses some sloppy definitions, but best I can tell, you would be considered self-employed according to the article. What they conveniently leave out is the large portion of workers who are actually employees per common law, but both they and the "employer" agree to ignore the law because they think it benefits them to do so, and they likely won't be caught (but if they are, paying all the back payroll taxes with interest and penalties can be brutal). You seem to fit in this category. >But I'm not on a contract or 1099 - the customer just sends me work and I invoice for it. Assuming you mean the U.S. 1099-NEC tax form, you most certainly are "on 1099". If your client is not issuing one to you every year, they are breaking the law and subject to penalties.

barfbagginus 3y ago
Can you please explain why I should get a 1099 from the customer? Suppose I was a machine shop rebuilding engines for mechanic shops. They send me busted engines, and I send them working engines and invoices, which the customer pays. I'm on the hook for a warranty if the engine fails due to my mistake. There is no need for a 1099. Why is that? In my case, the client sends rough and noisy data from CMM devices, and I return smoothed and rationalized designs and invoices, and I'm financially on the hook for mistakes that cause rework. How am I legally different from the machine shop? Don't say single customer, since that seems irrelevant. I'm free to sell to other customers, including my customer's own competitors. If you can cite specific documents or laws, that will help. I would also like to know your reasoning for why you think I'm self employed rather than a NEO. You just state your view, but that doesn't explain the principles you're applying. I also don't understand your reasoning as to why you think I'm committing or helping my customer commit employer tax fraud. I own my own process, intellectual property, and material assets. I have to service my liabilities, I'm on the hook if I cause damages, and I am free to sell to competitors. I am clearly a sole proprietor. The question is how I fall in the article's classification. If you would please explain your reasoning behind these things, that would help me decide whether your analysis/implied advice is helpful to me. Thanks!
- PopAlongKid 3y ago
  >Can you please explain why I should get a 1099 from the customer? Because it's the law. Per IRS instructions for Form 1099-NEC[0], which applies to your customer: File Form 1099-NEC, Nonemployee Compensation, for each person in the course of your business to whom you have paid the following during the year. • At least $600 in: 1. Services performed by someone who is not your employee (including parts and materials) (box 1); or 2. Payments to an attorney (box 1). (See Payments to attorneys, later.) >I would also like to know your reasoning for why you think I'm self employed rather than a NEO. You just state your view, but that doesn't explain the principles you're applying. I wasn't stating my view regarding NEO, I was trying to apply the sloppy, partly overlapping definitions provided by the article. The term "self-employed" is pretty well understood and referenced in the tax code; the term "NEO" is just something used in this article to draw some unclear (to me) distinction. If you talk to your state's employment development department, a tax professional, or a banker, they will probably not understand what you mean by "NEO". > I am clearly a sole proprietor. The rules are pretty well established, and come down to what tax people call "facts and circumstances". Per IRS Pub 15-A, "To determine whether an individual is an employee or an independent contractor under the common-law rules, the relationship of the worker and the business must be examined. In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered. Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties." See Pub 15-A for a more detailed discussion. > that would help me decide whether your analysis/implied advice is helpful to me I did not give you any advice, I was only trying to explain what the rules are and how they are applied. If you pay your full tax obligation including self-employment tax, and neither you nor the firm are ever audited, you will probably do just fine. You are missing out on employment benefits such as worker's comp, unemployment insurance, overtime, paid vacation/sick leave, etc. but you don't seem to mind. [0]I could look up the actual tax law but don't need to spend that time for this purpose.