Can an employer legally put his entire staff on 1099 status?
Before you rush to make judgment, you need to understand the 1099 status rules since they may not be completely clear, depending on the business.
The general rule is that an individual is an independent contractor if they, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result. If this is the case, than you should be considered an independent contractor.
If you are still unsure, I've outlined some questions for you to ask yourself. If you answer "yes" to any of the questions below, then you are probably an independent contractor.
1. Do you--rather than your employer--determine how the job is to be performed?
2. Are you paid by the job or project rather than an hourly wage or salary?
3. Are your services offered to the public and not just to one particular person, boss or business?
4. Do you use your own tools and equipment?
5. Do you determine the number of hours worked?
6. Do you have a contract with your boss stating that you will be paid as an independent contractor?
If the answer was "no" to the majority of these questions than you will want to ask yourself these questions:
1. Do you have set hours of work?
2. Are you paid in regular amounts at set intervals, such as an hourly wage, weekly salary, etc.?
3. Do you work at your boss's workplace or home?
4. Can you be fired?
5. Do you receive training from your boss or employer?
6. Do you have to follow specific instructions about how the work is to be done?
If you answered "yes" to the majority of these questions in this set, you are likely classified as an "employee."
If this is the case, you can decide to take your dispute to the IRS and file Form SS-8 (http://www.irs.gov/pub/irs-pdf/fss8.pdf).
Please note that if the IRS determines that you are an employee, you are responsible for filing an amended return for any corrections related to this decision. Also note that a determination that a worker is an employee is not guaranteed to reduce any current or prior tax liability.
If you decide to go this route and pursue a case against your former boss with the IRS, it is a decision that should be made with serious deliberation. It is very time consuming and you might need to hire an accountant in order to amend all of your tax returns.
In addition, generally you only have three years to amend a return to file for a refund, so this means that the first seven years of your employment with your boss will not result in a gain for you if your claim succeeds.
However, you may still wish to pursue this in order to satisfy your sense of moral responsibility, even if you don't gain at all. But, keep in mind, it will require a significant time commitment and will most likely require you to collaborate with your colleagues.
Bottom line: It is not an easy decision, but hopefully the information I've provided offers some initial guidance. I'm happy to discuss this matter further.
Ryan Himmel, CPA and registered securities analyst, is the founder and CEO of BIDaWIZ.com, a professional network for small businesses and entrepreneurs to obtain trusted advice and services from a team of CPAs, Enrolled Agents, Financial Planners & Tax Attorneys. His team provides answers to the many finance and tax questions that small businesses encounter every day. Ryan has been quoted in The Wall Street Journal, Forbes, Fox Business and Crain's New York, among other publications. Ryan also regularly contributes to the community with his finance and tax blog.