Multi-Ops, you've been warned.

DJ Wes said:

Are they willing to pay any and all fines should it be proven they were wrong?

You still haven't answered my question. And please answer honestly.

Are they 'allowed' to subcontract to your competition and continue to subcontract to you?

Are they required to display anything with your company name/logo on it like business cards, banners, shirts, etc.?

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Yep, they are willing to do anything to keep all this money coming their way. They represent my company when out on my events. They are not required to wear a specific uniform, we don't advertise with signs or banners and they hand out a card with their name on them when requested.

Under the current guidelines we're good.

depends on the event, they have both types of cards - one with their info and one with mine. When I get a call for a booking, the contact is sent to them and they take it from there.

Of course they are "employees" of mine - but I think we have enough safe guards in place to prove contract labor.

I don't see the government touching small multi-ops, but I do see them hitting up companies like A Sound Decision, the Pros, and other large multi-ops that span multiple states and metropolitan areas.

I appreciate your concern but I feel good about how my business is structured. I don't see them worried about little ol' me either.

DJ Wes said:

Let me guess. Every time an IRS agent comes by your place you offer them milk and brownies.

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ROFL! Rick offers them milk and "brownies," and 45 mins later they forget why they came in the first place!

Sounds To Go said:

ROFL! Rick offers them milk and "brownies," and 45 mins later they forget why they came in the first place!

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Actually, they don't come by here anymore... :sqconfused:

Last time, I had a couple AK's out and was cleaning them, and had a copy of the Turner Diaries sitting on the coffee table.

Then again, it may have been the Timmy McVeigh poster on the wall -- not really sure...

I miss them though...

My brother was a mechanic. He owned his own tools, but was paid as a commission employee (based on 'book hours'). His tools were 'LEASED' to the business (hence they were covered under the business owner's insurance) and they were paid once per year for that 'lease' around Christmas. ie - it was technically a 'lease' payment, but was their Christmas bonus.


The problem is that most companies misclassify employees. Here's a sure fire way to determine if they're employees. Are they signing a non-compete? If they do - they're employees - NOT subcontractors.

Contractors are allowed to do the work how they wish, and in many cases, when they wish. You have little control over anything but the final 'result'.

And in Florida, if they're contractors, you 'might' be considered a talent agent, which requires a $750 license, background check, and special paperwork.

Trust me on this.. it's a nightmare either way...

Wow so much mis information

You want to know if your 1099 person is not really a contractor?
Go to IRS.gov & read the questions. It makes it pretty clear. Their owning their own gear has NOTHING to do with it. Many professions the employees provide their own tools. Ownership of tools doesn't qualify them as a contractor.

Here are some red flags to watch for.

1.) Are they free to work for anyone they wish at any time?
2.) Do you have any contractual language prohibiting them from #1?
3.) Are they passing your business cards with their name on it that also bear your company name & logo?
4.) Are you providing more than 50% of their total income?
5.) Do they appear on your website or in your promotional materials?

If you answered no to 1 & yes to any of the last 3 your already laying the groundwork to be found in violation. The fines are clear, you get to pay BOTH sides of their Social Security tax, ie 15% of everything that they were paid, plus FED & STATE tax.

You think a contractor would never rat you out? guess again. It only takes one upset person to rain on your parade for a long time. all they have to do is call the State labor board. It will go up from there. The fines can really double & they will add tax evasion to the list of charges against you.

Those that want to argue, keep on, I am not interested. I know what the law is & what it isn't. I have been a technology consultant for 20yrs prior to being a DJ. I have seen a number of companies busted in my career. Size has nothing to do with it.

If your trying to run a company by avoiding employees using contractors, they will figure out your game. It's not like they haven't seen tax evasion before.

If the competition finds out, they might hand you over too. I doubt that it would be significant to receive the finder's fee for doing so. Can't remember offhand but the payments was substantial before it could go into affect.

Lots of misinformation coming from both sides on this one. The IRS itself warns that even their own guidelines must be applied with caution to each unique case. For example, handing out a business card with the subs name and your logo is not enough to make him an employee. You have to consider the whole picture as well as the type of industry or trade as well.

Two things to remember is that this can be a talent based business with seeded-sales all of which is tied to a single unique service contract for one discreet client... which means: while you can't prevent a sub-contractor from running his own business you can include language that prohibits him from soliciting leads and clients he obtains from you. That practice is very common and does not restrict anyone's trade - it simply protects your own proprietary sales information.

The place most multi-ops go wrong is when the bring one of these DJs into the office or warehouse to do regular on-site non-talent based chores and operations - such as maintaining gear or music, answering phones, etc. Unless there is a specific technical task that is typical of out-sourcing (such as a cleaning company, 3rd party maintenance operation) having them hang out at your facility typical shows an employee relationship. Some are even foolish enough to hand-out job titles like "manager" etc. to theri supposed subcontractors which only further illustrate an employee relationship.

I do repair work for mulit-ops as a sub-contractor. I might even have my own pass to the buildings, but I set my own hours any day or night (typically when I'm in the area) and repair any gear they have set aside as defective or questionable. I then invoice them for any work done. That's outsourced maintenance. If they hire me for a gig - each one is a separate unique contract job, even if I have to take along some unique piece of gear that belongs to them, or collaborate with some of their employees. MY business is selling talent and specialized labor - so even if I take some of their gear to a job - it doesn't make me an employee. If there are "specified times" for a gig those times are dictated by the third party client they represent - not by the multi-op or agent so, that's not a valid comparison to the IRS guideline of defined hours and is an example of why the IRS tells you to consider their guidelines in the entirety not as singular rules.

A bigger issue than federal tax code for multi-ops with a lot of sub-contracted talent is whether or not they might be acting as talent agents with respect to their state law. Someone who books DJs and bands by name on a request basis (star system) - might be required to be licensed and bonded under their own state law.

Next on the list is specialized insurances - such as: "business use of un-owned vehicles" which is a special liability coverage that protects you when an employee or sub is using their own vehicle to travel to and from jobs they are working for you. If they cause a serious accident you can be held liable if they are on their way to one of your jobs. The employee may have their own auto-insurance but, that covers them not you! It is very likely the employee's insurance company will be among the people pursuing you to recover their losses for any claims they paid on behalf for the employee or sub.

DJ Wes said:

So, are you saying that if I'm driving to my corporate day job and hurt or kill somebody on the way, my employer can be held liable?

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Wes, the answer is no. You are on private time until you get to work and clock in. If you were driving the Company Vehicle then "Yes!". A subcontracted Gig could be different because while you are out on that Gig you are representing that company at that time. If there is Sound equipment etc in the vehicle then it is a part of that process. An Employee and a Contractor/sub contractor are different.

DJ Wes said:

So, are you saying that if I'm driving to my corporate day job and hurt or kill somebody on the way, my employer can be held liable?

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Not for simply commuting, no. If you're an outside sales person for example, then definitely..yes, and your company likely has insurance that covers that liability. It's a slam dunk if an employee is using their own vehicle to conduct business on your behalf.

A little more dicey if it's truly a sub-contractor relationship since the vehicle is an assumed part of the subcontractor's resources and he has a his own business stake in selling the ability to travel or move gear around. There's still going to be a risk anytime your business relies on the safe operation of someone else's vehicle.

When the sub can be shown to get the majority of his work from just one source - I think that is where the ability to attach an employee relationship becomes easy for the IRS, the State, or other liability claim.

I am glad I am in Australia - to me well thats another story

Interesting discussion guys but honestly, I don't think any of us who haven't already gone through an audit and gotten dinged can really do anything but offer opinion. Heck, even between auditors you're likely going to get differing opinions and sometimes it's just the luck of the draw.

I appreciated Drax' punchlist. I answered "No" to all with the exception that I do ask my guys to pass my cards out and I might add their pictures to my website in the near future. I do not ask them to sign non-competes and I don't produce a majority of their income. At some point in the future that might change but until it does I intend to just keep with the 1099s. It seems pretty clear to me that we're nowhere near any gray area, although I retain the right to be wrong.

DJ Wes said:

I wish you all the best, but I don't wish you an audit. Because you might have some big surprises in store.

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Wes, you have a really distorted view of this issue, the generalized nature of the IRS references does not have universal application. You have confused "control" with ordinary contract restrictions and work definitions.

Because there is a pair of cascading contracts for each job - the IRS indicators you keep pressing are not really a factor. Subcontractors can be required to maintain and represent a consistent company image with respect to each contract job they accept. The important factor the IRS will consider in our business field is whether or not the subcontractor has the right to refuse a job without penalty. A second factor is whether or not the sub actually has any work capacity or work history independent from what he does for you. This is why who provides the gear is not really an issue - because DJ skills alone are marketable without any gear. Subs can be prohibited from using or sharing proprietary information, and from soliciting clients and leads obtained through your channels. Because this is a talent/skills based business, they can also be required to perform the work personally.

Allowing a subcontractor to run their own business doesn't mean you have to let them suck the life blood out of your own.