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Contract Labor and Employee with Simple plan


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Have a client that is paying two employees on 1099's  for cleaning services in addition to their normal w-2 wages.   The employer has a simple plan and the employees are participating in the simple plan for their w-2 wages.   The work is different than their normal jobs but they use the facilities of the employer and the cleaning is in the same office that they work in during the day.  

My concern is that the work cleaning after hours should be included with regular wages and thus they should be able to defer on that money as well.    I know this may not be the correct area to post this as it is more a contract labor vs employee subject.  

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If the plan document defines wages as W2 wages, I say no.  I don't think it makes a difference that they happen to be employed there for their  day jobs as well.  If it were outside cleaning people that  they were paying on 1099s they would definitely not be included in the plan.

4 out of 3 people struggle with math

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I would agree with KarolineWriter.  There are court cases that state that just because a person is an employee in one capacity does not foreclose the possibility that same person can be an independent contractor with the same employer in another context.  It is possible they have a separate cleaning company with a number of clients and possibly a separate plan.  

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Just to confirm the previous answers, as a "youngster" when I was a home office employee of a major insurance company in CT, I also taught classes after work for the company for employees taking exams in LOMA series leading to the FLMI (Fellow, Life Management Institute).  I was paid as an independent contractor for those classes while I was salaried for my regular job in marketing or the pension division.  It is perfectly OK to have both W-2 and 1099 from the same employer in the right situation (it has to be the RIGHT situation) and your cleaning example looks just fine for that distinction. 

Only the W-2 would count for any retirement program.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089

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Right to all of the above, but of course giving a person a W-2 doesn't make him/her an employee. It is ultimately a legal determination based on the control test.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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