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Serve as employee and a consultant for the same co.?


Guest Benefitsrock

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Guest Benefitsrock

Can an individual be both an employee and a consultant for the same company? I tend to think yes but now I am second-guessing myself. Any help would be appreciated.

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It could happen. Try this example. Man works in accounting department. Man's hobby is wood working and remodeling. Man does work on companys breakroom, paneling, building cabinets and such on the weekend and at night. Day job in accounting he is employee, remodeling the break room in the evenings and weekends he is contractor. Depends on facts and circumstances.

JanetM CPA, MBA

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Hello,

This really depends on what the role of the employee is within the company. An example, an employee who is a Director of Benefits can present and propose information, changes to plan design etc because that is part of their job. Ultimately, your top management has to approve recommendations or changes to existing plans and the director needs to work with his or her providers, legal etc to ensure that the plan change has no major implications to the company.

However, there is a fine line between employee and consultant because if the employee owns their own consulting business on the side, this would be a conflict of interest and would not be in the best interest of the company.

So it just really depends on the situation and the details of the situation.

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  • 1 month later...
Guest kshaw
It could happen. Try this example. Man works in accounting department. Man's hobby is wood working and remodeling. Man does work on companys breakroom, paneling, building cabinets and such on the weekend and at night. Day job in accounting he is employee, remodeling the break room in the evenings and weekends he is contractor. Depends on facts and circumstances.

JanetM, wouldn't it also depends on the company's policy. Personally, I see nothing wrong with it if the employee/consultant is an expert in whatever he is consulting the company on. It should be a plus for the company and the employee.

Kshaw

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Guest Sieve

Even if the 1099 were issued by a company to an employee for work completely unrelated to that employee's job description, my understanding is that the IRS will look very carefully at an employee who receives a 1099 & a W-2 from the same employer. This is particularly true if the employee's "consulting", carpentry or whatever is performed as an indpendent contractor (Schedule C filer) as opposed to an entity from which the employee also receives a W-2 or in which the employee is a partner or shareholder. If the employee is coming in on time-off just to perform tasks and receive exstra income, I would recommend against the extra pay NOT being on the W-2--but that may be jsut me.

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I can think of 3 valid situations for someone to receive both a Form W-2 and Form 1099-MISC from one company in the same year:

1. Not concurrent. An individual retires and then becomes a consultant to the former employer, serving in a very different capacity and under the terms of a new agreement.

2. Not concurrent. An independent contractor gets hired as an employee.

3. Concurrent. An employee performs services that are (1) separate from and beyond the scope of normal and traditional job duties and (2) otherwise classified as independent contracting. Here are a couple of real examples that I've encountered:

An administrative worker plays the piano. His employer hires him to perform at the company's holiday party and other special events. The individual controls his performances -- he has the right to accept or decline an engagement, and he decides what songs to play, when he takes his breaks, etc. The musical performances are completely disparate from the employee's administrative job.

An office employee is hired to prune trees and shrubbery on the company's grounds. The individual uses his own landscaping tools for the additional work, he determines how and when to do the work, and he's paid a flat fee (not an hourly wage) for maintaining the trees and shrubs. The landscaping work has no relation, whatsoever, to the individual's office job duties.

Noted -- If an employer issues a Form W-2 and a Form 1099-MISC to one individual for a single year, the IRS might inquire about the situation. When the employer has valid, legitimate reasons for classifying someone as both an employee and an independent contractor, however, the situation will be simple to explain.

Lori Friedman

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Guest Sieve

Agreed. (I like your piano playing example much better than the tree pruning example, because piano playing is outside the scope of any service the employer would generally need or provide. For example, if the employer was a hotel, and kept a pianist on staff as a full-time employee to play in the restaurant, a hotel assistant manager occasionally filling in for the piano player might not be an indpendent contractor--for lots of reasons, of course, which differentiate it from the tree-pruning example. These fact-intensive situations are maddening!!)

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FWIW, one of my forner employers hired me as an independent contractor to do my old job, during hours that I set, at their location, using their equipment, until my replacement was hired and trained. I always thought that it should have counted that as W-2 wages rather than 1099-MISC income, but the IRS did not question it.

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That probably depended on who got audited and items under scrutiny.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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