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  1. #1
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    Jan 2017
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    Default Employee Receiving W-2 and 1099

    My question involves labor and employment law for the state of: NY

    Just started new job and found there is an employee who is receiving both a W-2 and 1099 and feel this is not correct. Employee is hourly and works 40 hours during the week as a secretary. The partners are required to send letters to clients and all the partners, except one, draft and send the letters themselves. One partner refuses to do this and dictates the letters. This employee then takes the tapes home and types the letters, charging by the page. The practice pays her through accounts payable and the partner reimburses the practice through a payroll deduction. At year end the practice sends out a 1099 for the extra work. Am I correct in thinking since this work is clearly for the practice, is paid by practice check, and the practice issues the 1099, she would be entitled to claim overtime if she ever complained to the DOL or it was discovered during an audit? Would this also expose the practice to fines and Workers Comp issues? The partners have asked me for my opinion and was wondering what you, the experts, think. I have limited research capabilities so any cites of case law on point would be helpful.

    Thanks.

  2. #2
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    Default Re: Employee Receiving W-2 and 1099

    This is not legal. She is either an employee or an IC, not both. Since it's fairly obvious that she's an employee, that's how she should be paid, for all the work she does for your firm.

    If she makes an OT complaint to the DOL, the firm will be subject to fines and all the tax and other withholdings that weren't withheld from her IC pay. If she is ever let go and applies for UI benefits, the UI people will investigate and the firm will end up having to pay all the tax and other withholdings that weren't withheld from her IC pay. If either she or your firm are audited by the IRS (and there is a good possibility of this given that she's earning both IC money and employee money from your firm), the firm will be subject to fines and all the tax and other withholdings that weren't withheld from her IC pay.

    I have 20+ years training senior management in IC vs employee laws, so I know what of I speak.

    The IRS has a very good and clear description of the legally-mandated differences between ICs and employees on their website.

  3. #3
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    Default Re: Employee Receiving W-2 and 1099

    Quote Quoting eerelations
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    If either she or your firm are audited by the IRS (and there is a good possibility of this given that she's earning both IC money and employee money from your firm), the firm will be subject to fines and all the tax and other withholdings that weren't withheld from her IC pay.
    Actually, I wouldn’t characterize this as a “good possibility” of an IRS audit over this. Assuming that the employee and the employer have paid all the tax associated with the W-2 and 1099-MISC forms that were filed the IRS may not be alerted to the issue. The computer is not going to automatically flag it; some person at the IRS would need to be informed there is a problem or there would need to be an audit for some other reason and then issue then gets turned up in that audit. And even if the IRS is alerted to the issue, if all the tax is paid there is little incentive for the IRS to pursue the matter.

  4. #4
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    Default Re: Employee Receiving W-2 and 1099

    Quote Quoting Rock Knocker
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    These are separate positions, one done at her home at her choosing. The other at the employers work place. There is nothing in the the IRS rules that would prevent a person from filling both an IC position and an employee, as long as they don't happen simultaneously.

    You can check out the IRS website for more information on this if need be.

    It would be tricky, but it is quite possible.

    Presently the company is acting as an accountant and transfer agency for the partner by payroll deductions and accounts payable. If the company removed themselves from this mess, it would be even more clear cut. But since it is demonstrable that the partner is in fact paying for this service on his own, it shouldn't be difficult to shed any issues if the IRS or more likely state wage came calling.
    I can follow your logic pattern there, but that does not mean that she is legitimately a contractor. She could still be an employee, just not an employee of the company but rather an employee of the partner.

  5. #5
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    Default Re: Employee Receiving W-2 and 1099

    Quote Quoting Rock Knocker
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    These are separate positions, one done at her home at her choosing. The other at the employers work place. There is nothing in the the IRS rules that would prevent a person from filling both an IC position and an employee, as long as they don't happen simultaneously.

    You can check out the IRS website for more information on this if need be.

    It would be tricky, but it is quite possible.

    Presently the company is acting as an accountant and transfer agency for the partner by payroll deductions and accounts payable. If the company removed themselves from this mess, it would be even more clear cut. But since it is demonstrable that the partner is in fact paying for this service on his own, it shouldn't be difficult to shed any issues if the IRS or more likely state wage came calling.
    This is completely and utterly incorrect. (In other words, BS.) (And Rock Knocker has a history of providing completely and utterly incorrect information, so OP, act on it at your peril.)

    Rock Knocker, please explain how "it is demonstrable that the partner is paying for this service on his own" when the OP very clearly states that "the practice" (i.e., the firm, the employer, the company, the organization, whatever you want to call it) is paying the secretary for this duty.

    Quote Quoting llworking
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    I can follow your logic pattern there, but that does not mean that she is legitimately a contractor. She could still be an employee, just not an employee of the company but rather an employee of the partner.
    You are correct that this employee is not an IC, she is an employee. The partner is not paying her. The company is paying her. One way via AP and the other way via payroll. OP is very clear on this. Just because the partner reimburses the company does not mean she is not doing company work. If the company still wants the partner to reimburse it, the company can still (and should) do so even if the employee is being paid for everything correctly via payroll. Agree, that's how it should be done. They need to stop treating her as an IC.

  6. #6
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    Default Re: Employee Receiving W-2 and 1099

    Quote Quoting eerelations
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    This is completely and utterly incorrect. (In other words, BS.) (And Rock Knocker has a history of providing completely and utterly incorrect information, so OP, act on it at your peril.)

    Rock Knocker, please explain how "it is demonstrable that the partner is paying for this service on his own" when the OP very clearly states that "the practice" (i.e., the firm, the employer, the company, the organization, whatever you want to call it) is paying the secretary for this duty.
    Because the company is deducting the cost of what they pay the employee from the partner's pay. However, I was going to go on to add that it is also possible that she is working in the capacity of an employee to the company, whose services are being rented out to the partner (along the lines of a temp service) which put it back to her doing the work as an employee of the firm.

  7. #7
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    Default Re: Employee Receiving W-2 and 1099

    Trust me, she's an employee. This is due in part to the nature of the work she's doing - it's company work. She's not typing the partner's personal correspondence, she's typing stuff the practice requires the partner to send out. Ergo, she's typing company letters. (If she was cleaning the partner's house, it might be different.) It will matter not one whit to the IRS (or the DOL or UI or whoever) that this company requires one of its employees (the partner) to reimburse the firm for paying another of its employees (the secretary) to perform firm work.

  8. #8
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    Default Re: Employee Receiving W-2 and 1099

    Quote Quoting eerelations
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    Trust me, she's an employee. This is due in part to the nature of the work she's doing - it's company work. She's not typing the partner's personal correspondence, she's typing stuff the practice requires the partner to send out. Ergo, she's typing company letters. (If she was cleaning the partner's house, it might be different.) It will matter not one whit to the IRS (or the DOL or UI or whoever) that this company requires one of its employees (the partner) to reimburse the firm for paying another of its employees (the secretary) to perform firm work.
    I disagree a bit with you on this. You are assuming that this is company work when we don’t have sufficient facts to really know that. We don’t know what these letters are for or what the nature of this practice is. It is interesting to me that the other partners prepare their own letters rather than having the staff do it. I should think that if it was truly work for their firm they would have firm secretaries do it; that has to be more cost effective for the partners and the firm than spending their own (presumably more valuable) time to do it. Thus, as a former IRS attorney myself, I think the IRS would indeed care very much what the details of the arrangement are, and the fact that the firm requires a partner to reimburse the firm for this is very much relevant. Thus, that would indeed matter to the IRS. It is possible, after all, for a person to be both an employee and also have a relationship as an independent contractor with the same company. Though obviously not common, I have seen that occur.

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