Margaret CPA in OH Posted March 23, 2012 Report Share Posted March 23, 2012 My head hurts with this so any input would be most welcomed. New client is licensed personal trainer. Local business, XYZ LLC, well known for personal training particularly helping a group of folks with a muscular illness, wants new client to 'take over' training this group of clients. XYZ LLC is smllc, new client is smllc. If new client takes time off, group of folks will be trained by single member of business or another trainer. New client will use XYZ facilities and equipment at times determined by XYZ LLC. Most of the exercises in the beginning, at least, will be determined by XYZ LLC. I thought group folks should pay new client directly. New client asked XYZ LLC owner about arrangements. Owner says clients are clients of XYZ LLC and pay that LLC. So what exactly is the proper arrangement between New Client LLC and XYZ LLC? There seem to be gray areas. New Client has profit motive but location, time and equipment are not under her control. New Client also has other clients. What is the best arrangement, contractually, between New Client LLC and XYZ LLC? My brain hurts... Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 23, 2012 Report Share Posted March 23, 2012 independent contractor Quote Link to comment Share on other sites More sharing options...
jainen Posted March 23, 2012 Report Share Posted March 23, 2012 >>group of folks will be trained by single member of business or another trainer<< Generally I think this is an employee relationship even though New Client has a different business arrangement for his own clients. New Client does not control who he trains for XYZ, the facilities or schedule, or even the specific training methods. However, one of the key factors may be that the work does not have to be performed personally by New Client. This sounds unlikely to me considering New Client's professional qualifications for the quasi-medical nature of the job. But if it is a GENUINE part of the deal I would weigh it in relation to the rest of the terms. Does New Client LLC in fact hire other trainers? Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted March 23, 2012 Author Report Share Posted March 23, 2012 Thanks, Jainen. XYZ LLC will use other trainers available when New Client LLC is not. I advised NC to ask if contract could stipulate that NC could substitute trainers but I think XYZ can decide whether to use another trainer independently or use NC substitute. New Client is not in the position to hire other trainers to supply demand but XYZ has several trainers that work in the facility. I am trying to make some parallels to renting a booth a salon but am tripping over the fact the NC does not provide the clients for training. XYZ claims that the training clients are clients of XYZ LLC not the single member and XYZ engages NC LLC, among other trainers. I don't know the arrangements XYZ has with the other trainers. I'm just concerned about NC LLC but also don't want NC to walk away from what could be a great deal or do it in a way that jeopardizes her situation. XYZ sees NC as 'taking over' primary responsibility for this group of trainees in short order and the compensation looks to be in the $50,000 neighborhood. My brain still hurts... Quote Link to comment Share on other sites More sharing options...
jainen Posted March 23, 2012 Report Share Posted March 23, 2012 >>don't want NC to walk away from what could be a great deal<< Once again we must remember that if a deal isn't good without a tax advantage, it's not a good deal. My magic rune sticks say they're going to pay her on a 1099 no matter what she wants, but I hope they don't get audited. Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted March 23, 2012 Author Report Share Posted March 23, 2012 Yeah, that's a sure bet, the 1099. And I cautioned NC of the very situation you raised. So I have suggested a couple of contract verbiage sources for her to consider and several references regarding the differences. Neither of us will change XYZ as it has established this business model and appears to be firm on it. Guess I just want to be sure my client has eyes open and does all to protect herself. She will apply for Worker's Comp, EIN, etc. I'll just report what is given to me as I, frankly, don't have true inside info on XYZ. Thanks for the discussion. My brain hurts a little bit less... Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted March 23, 2012 Report Share Posted March 23, 2012 It looks to me like your client would be an employee in the eyes of the IRS. She is performing an integral part of the business operations as well as the other factors Jainen pointed out. What is the risk to your client if reclassified as an employee? This sounds like a situation where you need be careful not to hand out legal advice. Good luck. Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted March 23, 2012 Author Report Share Posted March 23, 2012 Thanks, DANRVAN. I have sprinkled my discussions with the client liberally with the "I am not an attorney...". I have also offered my opinion based on my interpretation of the same things you are likely consulting. However, as jainen pointed out, XYZ LLC is certainly going to give her a 1099MISC. I believe that there is little to no risk to my client as she would have paid all taxes due and more by filing SE. I also told her that there is an audit risk for XYZ but penalties, etc. would be on that LLC's shoulders. Let me know if you think differently. I am not aware of any risk on the part of my client any time soon and have provided lots of references to help her understand as best she can the situation. I have strongly suggested that she have a written contract with XYZ clarifying all that she can. I suspect that the audit risk of XYZ LLC is fairly small (limited IRS resources) but am also unclear if an LLC can be reclassified as an employee except that smllc is disregarded for tax purposes but maybe not for labor laws. Thanks again for insights. Quote Link to comment Share on other sites More sharing options...
jainen Posted March 23, 2012 Report Share Posted March 23, 2012 >>audit risk of XYZ LLC is fairly small (limited IRS resources)<< IRS doesn't care--it's the state labor people. The way it works is one of these trainers that come through for a while gets tired of working and files for Unemployment Insurance. Or even Workers Comp. And because he knows the game (having already played it a few times with other companies), he has all the paperwork showing it was always XYZ's clients, XYZ's schedule and facilities, XYZ's exercises. But XYZ isn't your client. So tell New to keep all her records, and she can get a paid vacation next spring. Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted March 23, 2012 Author Report Share Posted March 23, 2012 Good one, jainen! I shall suggest that for sure! Quote Link to comment Share on other sites More sharing options...
Catherine Posted March 24, 2012 Report Share Posted March 24, 2012 Jainen's right that it's the state labor people who cause the most grief. Frequently state rules differ from the Fed rules, too. For example, in Mass, they are _much_ more strict -- so strict, in fact, that they were running afoul of their OWN rules and forced a whole slew of independent contractors working for them to form corporations or lose their contracts. I've also seen companies hit with very heavy fines when the state determines those contractors were employees. Quote Link to comment Share on other sites More sharing options...
michaelmars Posted March 24, 2012 Report Share Posted March 24, 2012 Jainen's right that it's the state labor people who cause the most grief. Frequently state rules differ from the Fed rules, too. For example, in Mass, they are _much_ more strict -- so strict, in fact, that they were running afoul of their OWN rules and forced a whole slew of independent contractors working for them to form corporations or lose their contracts. I've also seen companies hit with very heavy fines when the state determines those contractors were employees. just having a corp doesnt make someone an independent contractor. we went through this in CT and all the people legitably had alot of other income, were all corps with own malpractice insurance, had a say in how they did their work and still Ct made them employees and since the penalty can be so draconian my client caved and agreed. Ct is so insane they tried to make the lawn cutter an employee for his 40-60 per week and they wanted to know who owned the tools that the cleaning service used when they came in at night. Quote Link to comment Share on other sites More sharing options...
Catherine Posted March 25, 2012 Report Share Posted March 25, 2012 just having a corp doesnt make someone an independent contractor. we went through this in CT and all the people legitably had alot of other income, were all corps with own malpractice insurance, had a say in how they did their work and still Ct made them employees and since the penalty can be so draconian my client caved and agreed. Ct is so insane they tried to make the lawn cutter an employee for his 40-60 per week and they wanted to know who owned the tools that the cleaning service used when they came in at night. These are folks contracting TO Mass, so the state is unlikely to investigate and penalize itself..... Quote Link to comment Share on other sites More sharing options...
michaelmars Posted March 25, 2012 Report Share Posted March 25, 2012 HMMM if Mass is not following fed guidelines and advising on how to create the appearance of independence, then maybe you can turn the whole state in to the irs, just think of the whistleblower reward!!! Quote Link to comment Share on other sites More sharing options...
Catherine Posted March 25, 2012 Report Share Posted March 25, 2012 HMMM if Mass is not following fed guidelines and advising on how to create the appearance of independence, then maybe you can turn the whole state in to the irs, just think of the whistleblower reward!!! Now THAT'S a funny thought. Thing is, though, Mass state requirements are tighter than the Federal ones. So they ran afoul of their own rules only. Ah, well. Quote Link to comment Share on other sites More sharing options...
jainen Posted March 27, 2012 Report Share Posted March 27, 2012 >>Mass state requirements are tighter than the Federal ones<< This is a very excellent fact for someone with very excellent records. The personal trainer in Margaret's original post could enjoy that paid vacation on Unemployment Insurance AND still write off all her mileage and other deductions as an independent contractor! Quote Link to comment Share on other sites More sharing options...
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