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Contract Labor Vs. Employees

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Damon Young

Sophomore Member
Joined
Jun 15, 2003
According to IRS docs, if you provide training to a worker they are an employee (not contracor). Several other factors also would clearly indicate that appraiser trainees would deinitely be considered employees under the statutes.

We will be hiring trainees for two reasons: 1) cheap labor 2) we remember how hard it was to get our foot in the door.

Talking to my accountant, he stated that theire was an "unwritten rule" that protected real estate professions from worrying complying with the contractor/employee definitions. His advice was to hire them as contractors and not worry about it.

I like the advice, but worry anyway about unwritten rules, especially when it comes to the IRS.

What do you guys think?
 

Patricia Dominguez

Freshman Member
Joined
Dec 30, 2002
I was working at H&R Block and I kept getting conflicting information from tax preparers there. But then again H&R pays such bad wages that they only have newbies and retirees for employees really.

I did some research, mainly because as employee you deductible mileage rate is .14 cents, and as a contractor (self-employed) its .36 cents if I recall. Plus the mileage for employees is only if you can itemize deductions. So basically I think most trainees would like to be considered contrators or freelancers.

Basically there where some tests you had to ask to differentiate between the two:

1) Can you make your own hours?
2) Do you have a say so in the way you conduct your work?
3) And also the one I don't think most appraisal trainees would not pass is: Do you have a say in who you will and won't work for, or basically for appraisal trainees can work for more than one appraiser?

(I don't have the book in front of me so these are paraphased)

If you get only one 1099-misc and it is not a temporary assignment than technically speaking, the person should be treated as an employee and not a contractor. The appraiser would be required to take taxes out of the wages.

I have a choice to work for another appraiser and I am thinking about doing it part time just so that I can say I am a freelancer, and I will have more than one client to prove it. I haven't talked to my mentor about it yet though still thinking about it.

My other question, which I still can't find an answer to is if you are a contractor, then are the miles to and from the office tax deductible, I know they are not if you are an employee. But if you are self-employed than the miles become a business necessity.
 

Damon Young

Sophomore Member
Joined
Jun 15, 2003
Hmmm, Might need better source than H&R Block.

No matter what your classification (employee, contractor, self-emplyed), you don't get mileage deduction for going to your office (unless over 50 miles for contractors).

Learned that while working as contractor in Silicon Valley boom days.

DAmon
 

Ed Potrafke

Sophomore Member
Joined
Dec 17, 2002
Trainees have to be directly supervised by a licensed appraiser, therefore they are employees.
Also, I believe that the special rules for real estate professionals are written so that they pretty much only apply to real estate sales persons.
 

Damon Young

Sophomore Member
Joined
Jun 15, 2003
I know that is what the stautes say, but if we need to do SS contributions, pay unemployment insurance, and pay worker's comp for trainees, it would be even harder for them to find a mentor tha it is now (none of my mentor paid any of that). The question is: can we legally get out of paying SS, worker's comp, and unemployemnt insurance?

Please, more feedback!

Damon
 

Ed Potrafke

Sophomore Member
Joined
Dec 17, 2002
I know that most mentors don't do that, but if they get audited they will wish that they had.
Go to the IRS' web site, they used to have a questionaire on there for contractor vs. employee. If memory serves me(quite frequently it doesn't), the questionaire used explained the what real estate professionals were contractors.
 

Damon Young

Sophomore Member
Joined
Jun 15, 2003
Yes, according to the satutes we must. No doubt it there in black and white. What I want to know is about exceptions or exemptions. My accountant, ( a real estate accountant), told me we (appraiser mentors) were definitely exempt. But it was an "unwritten rule."

So what I am looking for is not what the IRS says, but rather what it does not say or what some other source says to let us off the hook.

Thanks,
 

Ed Potrafke

Sophomore Member
Joined
Dec 17, 2002
This is the IRS we are talking about. I would NEVER go by any unwritten rules, unless I had a signed letter from my accountant, saying he would pay my delinquent taxes after the audit.
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
Common Law Rules

The following are a list of 20 questions the IRS uses to determine if a worker is an independent contractor or employee. The answer of yes to any one of the questions (except #16) may mean the worker is an employee.

1. Is the worker required to comply with instructions about when, where and how the work is done?
2. Is the worker provided training that would enable him/her to perform a job in a particular method or manner?
3. Are the services provided by the worker an integral part of the business' operations?
4. Must the services be rendered personally?
5. Does the business hire, supervise, or pay assistants to help the worker on the job?
6. Is there a continuing relationship between the worker and the person for whom the services are performed?
7. Does the recipient of the services set the work schedule?
8. Is the worker required to devote his/her full time to the person he/she performs services for?
9. Is the work performed at the place of business of the company or at specific places set by the company?
10. Does the recipient of the services direct the sequence in which the work must be done?
11. Are regular oral or written reports required to be submitted by the worker?
12. Is the method of payment hourly, weekly, monthly (as opposed to commission or by the job?)
13. Are business and/or traveling expenses reimbursed?
14. Does the company furnish tools and materials used by the worker?
15. Has the worker failed to invest in equipment or facilities used to provide the services?
16. Does the arrangement put the person in a position or realizing either a profit or loss on the work?
17. Does the worker perform services exclusively for the company rather than working for a number of companies at the same time?
18. Does the worker in fact make his/her services regularly available to the general public?
19. Is the worker subject to dismissal for reasons other than non-performance of the contract specifications?
20. Can the worker terminate his/her relationship without incurring a liability for failure to complete the job?

***************

Not sure of the source of this info as it has been saved as a Word .doc for several years. It may have come from some reseach when I was thinking about adding an appraiser to my staff.
 

C. Kevin Bokoske MAI

Junior Member
Joined
Jan 30, 2002
Professional Status
Certified General Appraiser
State
Florida
I believe the "unwritten rule" referred to in these posts were for real estate salepeople only, not appraisers. It would be risky to bring a trainee aboard and not treat him or her as an employee. Maybe an experienced appraiser, with their own camera, PC, etc., and working for more than one appraisal office, could pass muster as an indcependent contractor. Not the trainee-as-a-sub though.

Kevin
 
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