Sub-contractor vs. Employee -- which is it?

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Sub-contractor vs. Employee -- which is it?

Postby CJ Greiner » Wed Nov 10, 2004 8:48 am

No matter how many times it's discussed... there always seems to be some grey areas about hiring other DJ's to do gigs for you.

Are they an employee or a subcontractor?

You saying that "they're a subcontractor" doesn't always stand up in the eyes of the law, and you may need to be paying taxes and doing other things for your "employee" -- if that's what they really are.

--------------------
A subcontractor is a person/entity that is in business for themselves.
They have their own business license, insurance, employees/helpers, equipment, business cards, uniforms, advertising and customers.
They MUST have the ability to work for other people/businesses besides you.
They must pay their own taxes, and are responsible for withholding the taxes of their own employees (if they have any.)
They must be contracted for specific jobs, with individual contracts and billing performed for each job, or contracts written in such a way as to provide a specific time-frame including start and end dates for the subcontract.


BUT
If they only do jobs for you OR
If you are providing their insurance, equipment, supplies, advertising, uniforms OR
If they pass out your business card instead of theirs and aren't allowed to pass out their own or other businesses when they're not doing a job for you OR
If they are limited in any way as to where they get their gigs. (Only from you? And NOT from other companies?) OR
If they are contracted for an indefinite period of time, instead of specific dates OR
If they are limited in any way, then they are your EMPLOYEE.


-------------
There are City, County, State and Federal Taxes and laws that have to be followed. A CPA/Accountant will help you with all of that:
:arrow: Back Taxes + interest + fees + fines == Pain!

Do it right from the beginning and keep all of your paperwork, including the subcontractor's contract for each job, and you'll have no problems at audit time.

:idea:
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Re: Sub-contractor vs. Employee -- which is it?

Postby BillESC » Wed Nov 10, 2004 11:07 am

Excellent advice CJ.

Many don't seem to realize that "sub contractors" must have their own liability, workers comp. and unemployment insurances... otherwise you become responsible for these costs.
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Re: Sub-contractor vs. Employee -- which is it?

Postby djmc » Wed Nov 10, 2004 11:26 am

CJ:

According to "Boombastic" at DJ Chat, the IRS made new guidelines a few months ago that now make it nearly impossible to classify your Subs as IC.

He told me that the guidelines you're citing (the ones I've been following for 10 years since Randy got burned for his 100k tax lien...) are now obsolete.

Maybe he will join the board here and elaborate on what the NEW Independent Contractor guidelines say?
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Re: Sub-contractor vs. Employee -- which is it?

Postby boombastic » Wed Nov 10, 2004 2:09 pm

Here I am...

Here is the information direct from the the IRS.

Following are the 20-points that have been established:

Must the individual take instructions from your management staff regarding when, where, and how work is to be done?
Does the individual receive training from your company?
Is the success or continuation of your business somewhat dependent on the type of service provided by the individual?
Must the individual personally perform the contracted services?
Have you hired, supervised, or paid individuals to assist the worker in completing the project stated in the contract?
Is there a continuing relationship between your company and the individual?
Must the individual work set hours?
Is the individual required to work full time at your company?
Is the work performed on company premises?
Is the individual required to follow a set sequence or routine in the performance of his work?
Must the individual give you reports regarding his/her work?
Is the individual paid by the hour, week, or month?
Do you reimburse the individual for business/travel expenses?
Do you supply the individual with needed tools or materials?
Have you made a significant investment in facilities used by the individual to perform services?
Is the individual free from suffering a loss or realizing a profit based on his work?
Does the individual only perform services for your company?
Does the individual limit the availability of his services to the general public?
Do you have the right to discharge the individual?
May the individual terminate his services at any time?

Here is my disertation of the 20 questions according to my lawyer.
In general "no" answers to questions 1-16 and "yes" answers to questions 17-20 indicate an independent contractor.

As you will notice - the first question disqualifies a DJ immediately - you have to tell your dj when and where to DJ. Now most clubs and bars can get around this by saying "DJ on Fridays after 8 pm" - they have not set specific dates, nor specific times. A wedding, school, or otehr private event is going to include a specific date and a specific timeframe.
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Re: Sub-contractor vs. Employee -- which is it?

Postby boombastic » Wed Nov 10, 2004 2:14 pm

Also from the IRS website:
http://www.irs.gov/govt/fslg/article/0, ... 44,00.html

Employee or Independent Contractor?

Whether someone who works for you is an employee or an independent contractor is an important question. The answer determines your liability to pay and withhold Federal income tax, social security and Medicare taxes, and Federal unemployment tax.

In general, someone who performs services for you is your employee if you can control what will be done and how it will be done.

The courts have considered many facts in deciding whether a worker is an independent contractor or an employee. These facts fall into three main categories:

Behavioral Control – Facts that show whether the business has a right to direct and control. These include:


Instructions - an employee is generally told:


when, where, and how to work
what tools or equipment to use
what workers to hire or to assist with the work
where to purchase supplies and services
what work must be performed by a specified individual
what order or sequence to follow


Training – an employee may be trained to perform services in a particular manner.


Financial Control – Facts that show whether the business has a right to control the business aspects of the worker’s job include:


The extent to which the worker has unreimbursed expenses
The extent of the worker’s investment
The extent to which the worker makes services available to the relevant market
How the business pays the worker
The extent to which the worker can realize a profit or loss


Type of Relationship – Facts that show the type of relationship include:


Written contracts describing the relationship the parties intended to create
Whether the worker is provided with employee-type benefits
The permanency of the relationship
How integral the services are to the principal activity
For a worker who is considered your employee, you are responsible for:

Withholding Federal income tax,
Withholding and paying the employer social security and Medicare tax,
Paying Federal unemployment tax (FUTA)
Issuing Form W-2, Wage and Tax Statement, annually,
Reporting wages on Form 941, Employer’s Quarterly Federal Tax Return.
For a worker who is considered an independent contractor, you may be responsible for issuing Form 1099-MISC, Miscellaneous Income, to report compensation paid.
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Re: Sub-contractor vs. Employee -- which is it?

Postby Dave Miller » Wed Nov 10, 2004 3:58 pm

boombastic wrote:Must the individual take instructions from your management staff regarding when, where, and how work is to be done?
---
Here is my disertation of the 20 questions according to my lawyer.
In general "no" answers to questions 1-16 and "yes" answers to questions 17-20 indicate an independent contractor.
---
As you will notice - the first question disqualifies a DJ immediately - you have to tell your dj when and where to DJ.
---
Does the individual limit the availability of his services to the general public?

Actually, these posts leave me more confused than ever.

Contrary to what you said in the first and third item I quoted above: The DJ does not take the when/where/how instructions from the "employer". Rather, the "employer" relays that info from the client. Or, in some cases, the DJ is allowed to talk directly to the client and gets that info himself.

A DJ service that has several clubs and juggles the DJ staff and schedule accordingly, would be considered an employer/employee relationship.

Acording to the second item quoted, you're looking for a "Yes" to the forth item quoted. Um. That should be a big fat NO. That question is a major key to deciding if it's an employee or sub-contractor.

Your second post lists some good items to test if the person is an employee or subcontractor, but, again, it was unclear which answer would indicate what result.
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Re: Sub-contractor vs. Employee -- which is it?

Postby boombastic » Thu Nov 11, 2004 1:56 pm

I'm sorry this confused you, but I am also getting from your post that you, like many others, "make" the regulations "fit" your needs.

The who, what, and when is part of a contract, correct? Who is the contract between? The company and the client. Correct? Then it doesn't matter if the client also tells the dj who will be doing the event. The contract is what rules - what if teh client told the dj one thing and the contract stated another- what would hold up in court? The Contract!

In an IC - the contract would be between the DJ and the Client - you could charge the dj a finder's fee if your referred them...

Any DJ who says, "the client tells my DJ when, where, how..." is trying to fool themselves into thinking they are legitimate.
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Re: Sub-contractor vs. Employee -- which is it?

Postby CJ Greiner » Thu Nov 11, 2004 9:59 pm

Maybe it would be easier to understand if we came up with a list of things that you CAN do, and things that you CAN'T do.

A very precise list would be very helpful.

-----------------
I know that plumbers, architects, electricians, and other trades all work as subcontractors. How do their business practices compare to ours and how do we as the "Master Contractor" make sure that we're doing things correctly?
-----------------
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Re: Sub-contractor vs. Employee -- which is it?

Postby boombastic » Thu Nov 11, 2004 10:14 pm

CJ -

There is no precise list because the IRS admits there are too many possibilities. Thus they setup the 20 questions. They expect businesses to qualify themselves, then prove it to the IRS if they happen to be audited.

That is why I am posting this - too many DJ's think they are legal, but aren't.
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Re: Sub-contractor vs. Employee -- which is it?

Postby boombastic » Thu Nov 11, 2004 10:22 pm

Here is the way to be a DJ and be an Independent Contractor.

Advertise yourself as a DJ.
Buy or rent some equipment.
Accept clients on your behalf.
Accept clients from other DJ services as long as they sign your contract.
Perform for contracted clients.
Accept payment from client.
Pay self-employed taxes in April.

If you don't realize it yet, your are basically your own company.

The only long-standing relationsship you can maintain as an IC is a club or bar situation.

You works Fridays afer 8 pm (no specific Friday with general hour parameters)

You are paid by the bar by company check or cash with reciept.

You request a 1099 in January.

If you look, though, the 20 questions test would make even a club Dj very difficult to prove as an IC.
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Re: Sub-contractor vs. Employee -- which is it?

Postby CJ Greiner » Thu Nov 11, 2004 10:35 pm

From what you say, I don't think you can be an Independent Contractor if you are a Bar DJ.

The only bar scenario that would allow you to be an independent contractor is if the bar owner hired your company to provide DJ's and entertainment.

It would then be up to you to hire and fire the DJ's that worked for you and you would receive a fixed contracted amount from the bar owner for your services.

-------
There are definitely ways to be an independent contractor, even when a client signs the contract with the other DJ that's contracting you.
We just need to figure it out...

Example: A contractor building a house hires a subcontractor (independent contractor) to do the electrical wiring. The house owner only has a signed contract with the main contractor -- not the subcontractor. Is the subcontractor an independent contractor? Yes.
We need to figure out how to apply that same situation to the DJ world.
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Re: Sub-contractor vs. Employee -- which is it?

Postby boombastic » Fri Nov 12, 2004 2:32 am

CJ-

I know exactly what you are asking. How do we make this work?

The problem goes back to my original post - the when...

A general contractor is able to say to a independent contractor, "You should start working on the 15th", but doesn't say for how long. Or, says, "We need the thing powered by the 10th", but doesn't say when to start.

See the major problem here? As a DJ, you have set start and stop times. they are typically contracted. Even if you have an unlimited timeframe setup in the contract - you have still specifically set the specific day and date and a start time , which the IRS is now deeming to be an "employee" situation.
An IC can work a random bar gig because it is at will employment. He shows up with his music and knowledge, nothing else. He also doesn't provide anything else! He is the entertainer that evening. He plays sporadic dates and sporadic times. He covers all his music expenses and promotes himself as he promotes the bar.

When Paul Oakenfold plays a club, is he an employee? No - he is the entertainment for that night. A service payable and taxable under a 1099 at the end of the year.
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Re: Sub-contractor vs. Employee -- which is it?

Postby CJ Greiner » Fri Nov 12, 2004 11:26 am

Well, using that analogy (bars have set hours, music genre requirements and dress codes too, by the way)...

A bride hires me (the entertainment director? the entertainment agent?) to make sure there's someone at her wedding to provide entertainment.
I call around to all of the established DJ businesses looking for one that can provide that service.

When I find a service that will do it -- I contract them using a subcontractor agreement and tell them when and where the event is and what the specifics of the job are including when it starts, ends and give them a copy of the reception planner that the customer has filled out.

That DJ is the entertainment for the night.

--------
How is that any different from an electrical subcontractor that shows up on a job between certain hours or dates as set out by the hiring company, and does the electrical work according to plan?

That subcontractor is the electrician for the day/week/month.

:?: :cry: :roll:
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Re: Sub-contractor vs. Employee -- which is it?

Postby Dave Miller » Fri Nov 12, 2004 11:45 am

I know I'm throwing a monkey wrench into this mess but what do you think of this?

The electrician subcontracted is not a person, but a company, or at least a licensed professional.

If the subcontracted DJ is a fully registered company, even a single operator, then it IS a sub-contractor relationship. However if the DJ is not a true company, then he is an employee.
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Re: Sub-contractor vs. Employee -- which is it?

Postby djmc » Fri Nov 12, 2004 12:23 pm

And another thing........I've heard that if the Subcontractor can replace himself or herself with another DJ, that is a sure-fire sign that the Sub is an IC

IOW, you can't specify that XYZ DJ will be the performer. XYZ can turn around and hire another person to perform the work

Classic test of IC status....
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Re: Sub-contractor vs. Employee -- which is it?

Postby boombastic » Fri Nov 12, 2004 1:25 pm

"How is that any different from an electrical subcontractor that shows up on a job between certain hours or dates as set out by the hiring company, and does the electrical work according to plan?

That subcontractor is the electrician for the day/week/month."

But the electrician isn't required to be onsite throughout the entire timeframe. He can arrive when he chooses on the first day and leave anytime he wants to. A DJ can't do that - they are contracted to perform from 8pm to midnight. They have no control over the contracted timeframe, thus they are an employee.
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Re: Sub-contractor vs. Employee -- which is it?

Postby boombastic » Fri Nov 12, 2004 1:30 pm

"And another thing........I've heard that if the Subcontractor can replace himself or herself with another DJ, that is a sure-fire sign that the Sub is an IC

IOW, you can't specify that XYZ DJ will be the performer. XYZ can turn around and hire another person to perform the work

Classic test of IC status...."

The test is - can the SUBCONTRACTOR replace HIM/HERSELF - an electrician can have another electrician come in and do the work, but would you be happy as the owner of a DJ company if one of your "subs" called another DJ to work his event instead of calling you, the owner? I don't think so. You'd be pi$$ed. It's your business, your "subs" should not have that kind of control - something goes wrong (they can't perform all of a sudden) they should be calling you, not another DJ to replace them. Another control of the business issue (see 2nd post at beginning for the control issues).
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Postby CJ Greiner » Sat Nov 20, 2004 10:32 am

So I'm curious...

When a performer, say an actor, is hired through an agent -- who does he work for? Or can he be an independent contractor?

If I sign a contract with a bride to provide another DJ, then send another DJ giving him the money less my agency fee of 15% -- does that make me an agent and him an independent contractor?
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Re: Sub-contractor vs. Employee -- which is it?

Postby boombastic » Sat Nov 20, 2004 11:46 pm

CJ -

I don't know the exact legal specs for an "agent" relationship, but here is how I would see it working.


You pay an agent to represent you - the agent works for you. The agent doesn't work set hours, doesn't work at the actors location, and does whatever it takes to get teh actors hired - thus the agent is an independent contractor.

Here is where it gets interesting - actors can either be employees or independent contractors. Once the agent gets the actor a job, the actor signs a contract with the production company. Check out this link for an tax appeals court case from an actor on "Another World" and "As the World Turns" - the actor was an employee because they met specific criteria (criteria that is still used in the 20 questions).

http://www.ci.nyc.ny.us/html/dof/pdf/00pdf/grossman.pdf

I don't have any information on an actor being an IC - but I know many actors are part of the Screen Actors Guild (Union) or other Actor Unions. Thus they are contracted throught the union and probably are employees as well. Don't exactly know.

Then again - It doesn't matter. I have already presented enough information to substantiate that DJ's with-in a multi-op are employees, not IC's.
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Sub-Contractor vs Employee

Postby Diana McKinney » Thu Dec 30, 2004 12:32 pm

I used to work for a company that installed fire sprinklers in commmercial and residential buildings. You can bet your bottom dollar that if the GC (general contractor) told us to be on the job on such and such a date and time because that is when he needed us to be there then by God we were there. Nothing would ever be built in a timely fashion if a GC could not control when people are on the job site. If for some reason we could not make the date we didn't just call another sprinkler installer and have them do the work. No, we called the GC and kept him appraised of what was going on. And we often had to pay a penalty to the GC if our delay caused him problems.

So, was our company now an employee of the GC? Heavens no. By the way, the payments to the sub-contractor need to be made to the sub-contractor's company, not to the person doing the actual work. So if I call Leonard to sub-contract a gig for me I write the check to Colorado Sound, not to Leonard K. And he has the right to do the gig himself or use Scott, his employee. If I want Leonard to do the work himself then I pay the extra money he charges for his exclusiveness. I give Leonard the specifics, start time, location, end time. He chooses when he will show up and how he will do the event, within the bride's requirements. He can start early if he likes, or even start late if he so desires (with the understanding that he will be responsible for any compensation required by the bride or myself for not starting the job on time.) He is in control. This is why you have to be picky about any sub-contractors you may decide to use. You need to use someone you know is above board and legit. And behave the same way yourself. Be sure to send any Sub-Contractor a 1099. Despite what the general public thinks, the IRS is not out to "get you". They just want to make sure that taxes are being properly paid by someone. If both businesses use TINs instead of SSNs for tax purposes that further defines you both as legit businesses.

My (and my accountant's) $200.00 worth.
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