"independent contractor"

[doombuggy]

A plan we have apparently has an employee who has been with the employer for 11 years, and has gone from being a full time staff person to an independent contractor who works 24 hours a week most of the year, except for 40hr/wk from mid-January to mid-April. The plan document is one of Datair's mass-submitter prototype non-standardized safe harbor docs, and only excludes union and non-resident aliens. The client thinks that she is no longer eligible to participate and should be paid out. She became an independent contractor in mid-2004, so the W-2 I have for her might only be for the first 8 months of the year (I am not sure). I definately beleive she cannot be paid out, but I am not so sure about the elig. part. Would it depend on the fact that she may be W-2 or 1099? Thoughts?

Thanks for your help!

[Demosthenes]

If she is an independant contractor, then she is no longer an employee and has, in fact, separated from service. She has terminated her employment.

The key determinant is whether or not the independant contractor rules apply. Payment by 1099 is certainly a good sign, a W-2 by the Employer would be a bad sign.

The IRS has devoted a lot of effort to defining employees. common law employees, and contractors. Here's a basic primer

http://www.irs.gov/businesses/small/articl...d=99921,00.html

But, the employer has to make that call. I'd request that the employer certify that this individual has terminated employment and have the employer request the distribution.

Employee versus Contractor is a snake pit, it's been abused by every industry out there and the IRS finds it ripe for manipulation.

Having been a Contractor for about the last 3 years (really, really really! Different companies, assignments and everything!!!), I've seen a lot of variation and I can say that the former employee who sits in the same desk doing the same job as a contractor, is least likely to pass the sniff test from the IRS. But again, the employer is the one crawling out on that limb.

[Guest b2kates]

look at SS-8 for the 20 point test independent contractor v employee

if this is the only work for the former employee and with the extensive amount of time; likely would be catagorized as employee

misclassification can be expensive; under withholding and under payment of tax liabilities.