1099, no W-2 considered common law employee

[pensionreview]

An independent contractor who receives a 1099 is actually a common law employee under ERISA and should be in the pension plan his company will sponsor. The problem is the definition of compensation in our Volume Submitter document calls for W-2 income of which he has none.

How can I include him?  Do I have to go to a custom document? Thanks.

[ETA Consulting LLC]

"IF" he is a common-law employee under ERISA, then why is he being paid on a Form 1099?  For argument sake, let's assume that the Form 1099 is the appropriate form (which basically says that this is your 'revenue from self employment' and 'when you complete for personal income taxes you may take deductions against it when determining your earned income'.  In that case, you would have the individual complete a Participating Employer agreement; where his income would be defined as 'earned income from self employment' and will be consistent with his form of payment.

Good Luck!

[CuseFan]

The Employer may not be treating the person as an employee, and the terms of the plan may then call for exclusion, in which case you cannot cover even if the appropriate determination (or your determination) is that the person is indeed an employee. This is not a statutory exclusion for coverage and nondiscrimination but an exclusion through the definition of eligible employee.  Here is Relius volume submitter language. If you have a coverage failure by excluding this person, then you have a demographic failure to fix, but if not, then (s)he should continue to be excluded unless and until the Employer treats as an employee and pays via W-2.

(b)   An individual shall not be an Eligible Employee if such individual is not reported on the payroll records of the Employer as a common law employee. In particular, it is expressly intended that individuals not treated as common law employees by the Employer on its payroll records and out‑sourced workers, are neither Employees nor Eligible Employees, and are excluded from Plan participation even if a court or administrative agency determines that such individuals are common law employees and not independent contractors. However, this paragraph shall not apply to partners or other Self‑Employed Individuals unless the Employer treats them as independent contractors.

 

[ESOP Guy]

CuseFan's answer very well have answered the direct question.

This might be outside the control of the question asker but...

The determination if a person is an employee or an independent contractor is a legal question and NOT subject to negotiations.  Either the person is an employee per the law at which time they by law should be treated as such.  That would include having the needed taxes withheld and their income reported on a W-2.  Or the person is an independent contractor by law and as such should be treated as such.  Thus, the person can't be in the plan and the income ought to be reported on a 1099.  The language CurseFan quotes is in plans in case a court rules a person who was treated as a contractor is ruled an employee the plan would not be required to go back and cover the person for those years.  I have never understood that language's purpose is to allow you to ignore the law regarding who is or is not an employee.  Thus after the court rules the company could not keep that person out of the plan by continuing to claim the person isn't an employee.  They would have to change the plan to exclude a given class of employees if they don't' want to cover the person. 

When I say this isn't subject to negotiations I mean just because the employer and the person performing the services agree to 1099 the person is irrelevant.  You can't negotiate a contract to break the law if indeed the person is an employee by law. 

The fact you start by calling this person an employee and then talk about them getting a 1099 suggest the real problem is someone might be breaking the law on how this person is being treated for tax law purposes.  And that is the reason the plan's language doesn't seem to work.  It wasn't intended to cover situation where the law is being broken.