Author Topic: Job offer w/ lots of moving parts  (Read 1254 times)

Gmxx11

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Job offer w/ lots of moving parts
« on: September 11, 2018, 01:13:12 PM »
Hi Mustachians! Long time lurker and believer in the cause here, and I'm hoping for some help!

I just recently received a job offer that I'm pretty excited about, but they switched it up on me last second. Originally the assumption was that I would be a software developer in this company's consulting division as a W2 employee. The company is based in CA w/ about half of their employees there and 1/2 remote around the country. Living in OH, they asked me if I would be willing to be a 1099 contractor due to their lack of a employment nexus in Ohio and how it would affect their tax situation. I'm not opposed to it, but I need a better understanding of what it would entail.

The offer as it stands now is as follows. They have listed their offer in monetary value as a direct conversion from what I would have received had I been a W2 employee:
  • Annual base salary   - $ 82,000.00
  • Self-Employment tax on base salary -  $ 6,275.00 
  • Annual cost of health benefits    - $ 11,524.00 
  • Health Savings Account Contribution - $ 2,000.00 
  • Self Employment tax on benefits - $ 1,035.00
  • Total compensation - $ 102,834.00

This looks great to me, but being a 26 year old who's only been employed as a W2, I'm concerned about the unknown.
  • They have suggested creating an SMLLC. What does this entail? Would it be beneficial for my current situation? I like the idea of starting an LLC and potentially contract other clients.
  • I would have to provide my own health insurance. Would creating an LLC help me with that? I'm struggling to figure out what my personal costs would be.
  • Am I assuming any risk by being a 1099 contractor? As it looks now, I would be responsible for ~8 hours of work per day. They do have another employee in my area working under a similar arrangement, so I know they have done this before.
  • It seems as if I will end up ahead after taxes but, with my limited understanding of tax laws specifically regarding self-employment / LLC's, I am not confident in this. Are there any tax implications I should be aware of? Are there any resources I should be aware of that would help me minimize my taxable income?

I apologize if this is too general, and I'll clarify whatever I can. I want to make sure I'm not overlooking anything. I'll take any input you can give me!

Thanks!

« Last Edit: September 11, 2018, 02:24:14 PM by Gmxx11 »

MayDay

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Re: Help! Job offer w/ lots of moving parts
« Reply #1 on: September 11, 2018, 01:27:44 PM »
They can't (legally) just call you a contractor of you are really an employee. The fact that they are ok with this would make me hesitant.


bacchi

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Re: Help! Job offer w/ lots of moving parts
« Reply #2 on: September 11, 2018, 01:32:25 PM »
This looks great to me, but being a 26 year old who's only been employed as a W2, I'm concerned about the unknown.
  • They have suggested creating an SMLLC. What does this entail? Would it be beneficial for my current situation? I like the idea of starting an LLC and potentially contract other clients.

Depends on the state but you register with your Secretary of State and apply for an EIN through the IRS. The EIN is easy. The state could be easy or annoying.

You don't need an LLC but, as a 1099, you'd get the 20% QBI revenue deduction. It's a generous and probably unsustainable tax giveaway -- use it while you can.

Quote
  • I would have to provide my own health insurance. Would creating an LLC help me with that? I'm struggling to figure out what my personal costs would be.

Unlikely. Go to the ACA marketplace and input some data.

Quote
  • Am I assuming any risk by being a 1099 contractor? As it looks now, I would be responsible for ~8 hours of work per day. They do have another employee in my area working under a similar arrangement, so I know they have done this before.

Are you hourly?


What about paid vacation, holidays, and sick days?

Gmxx11

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Re: Help! Job offer w/ lots of moving parts
« Reply #3 on: September 11, 2018, 02:02:10 PM »
Are you hourly?

What about paid vacation, holidays, and sick days?

I would be paid bi-monthly, and everything I've heard has been that I would be treated as salaried.

As well, I would be getting 7 holidays, 2 weeks vacation (1 week after 6 months and the rest acquired as a percentage of my work), and 5 sick / personal days.

Gmxx11

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Re: Help! Job offer w/ lots of moving parts
« Reply #4 on: September 11, 2018, 02:04:27 PM »
They can't (legally) just call you a contractor of you are really an employee. The fact that they are ok with this would make me hesitant.

It gave me pause too. What prevents them from (legally) calling me a contractor vs an employee?

bacchi

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Re: Help! Job offer w/ lots of moving parts
« Reply #5 on: September 11, 2018, 02:10:37 PM »
They can't (legally) just call you a contractor of you are really an employee. The fact that they are ok with this would make me hesitant.

It gave me pause too. What prevents them from (legally) calling me a contractor vs an employee?

The IRS has some guidelines.

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

Does the company control your actions? Does it control your hours (9-5?), how you do your job, what equipment you use, and your vacation time?

By paying you bi-monthly and giving you a set # of vacation and sick days (with vacation days vesting!), you sound like an employee.

Gmxx11

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Re: Help! Job offer w/ lots of moving parts
« Reply #6 on: September 11, 2018, 02:21:48 PM »
They can't (legally) just call you a contractor of you are really an employee. The fact that they are ok with this would make me hesitant.

It gave me pause too. What prevents them from (legally) calling me a contractor vs an employee?

The IRS has some guidelines.

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

Does the company control your actions? Does it control your hours (9-5?), how you do your job, what equipment you use, and your vacation time?

By paying you bi-monthly and giving you a set # of vacation and sick days (with vacation days vesting!), you sound like an employee.

My position would be Software Consultant Developer. It would be a full time, contract position. Work hours will be 8 hours a day for the most part, Monday through Friday. I will be working remotely and interfacing with their staff and customers as necessary.

I agree it sounds employee-esque. It seems as if the company is assuming the risk that the IRS would classify me as a Employee instead of a Contractor. As of yet, I haven't yet found the consequences for the employee in this misclassification situation.

kristof

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Re: Job offer w/ lots of moving parts
« Reply #7 on: September 12, 2018, 05:42:03 AM »
I'm a software developer and currently am exclusively freelancing, but have been a W-2 employee in the past. I have two clients for whom I have worked in both capacities. As far as I know, there's no legal/financial penalty for the employee if the IRS determines they were misclassified as a contractor. My understanding is that most of the time, companies do this to avoid paying taxes and benefits, so it's often the misclassified employees themselves who blow the whistle on the practice.

From what you described, this definitely seems like they are misclassifying you and my biggest hesitation would be what their willingness to risk this implies about the rest of their business practices (i.e. they're either too incompetent or too stingy to avoid this risk).

That said, unless the health care costs are huge (unlikely since you're young), you should come out well ahead financially, partly because of the 20% QBI deduction someone already mentioned ( https://www.nolo.com/legal-encyclopedia/the-new-pass-through-tax-deduction.html ), and because if you set up an LLC, you can also set up your own 401(k) plan to which you can contribute significantly more than what you could if you were an employee (20% of your net income in addition to the standard $18,500).

In short -- I'm not a lawyer but unless they're sketchy in other ways and this is one of multiple red flags, I would do it since they likely won't get caught, and if they do, all the risk is on them.

Another option would be to say, "Hey, this sounds good but I'm worried about getting you in trouble with the IRS, let's make sure this is a bona fide consulting situation" and decline the vacation time, raise your rate accordingly, and write up a contract that gives you some more flexibility on working hours etc. Could be a win-win and show them you're a serious professional and looking out for them.

brute

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Re: Job offer w/ lots of moving parts
« Reply #8 on: September 12, 2018, 07:08:44 AM »
I've run a small consulting firm (software) for 6 years now. This place is violating a host of laws. You would be an employee. Companies can't give holidays to other companies. When is the last time Walmart told FedEx "Yeah guys, it's cool with us if you don't work labor day". Lawyer up. Get help writing a real consulting contract. Up the rate to cover vacation, sick time, holidays.

That being said, you won't be the one to suffer if they get busted, aside from losing your work. So if you need to money now, eh, screw it. Why not.