Employment Law: Paying to hourly consultant (part time) - Tax Laws?

Question

I am in California and thinking of starting a business where I will charge my customers for the services I offer.

However, these services will be offered by pool of moon lighters (registered service providers on my site - most of them working part time for hourly wages). These service providers will be paid for their hours used (no project no payment basis). They are not full time and I am not providing any benefits to them.

Q1: Is this a legal business model? What about 1099 or W-2? Do I need to give them soem kind of tax document at the end of a year?

Q2: Do I pay employer part of taxes for these temp consultants?

Any more details with some links will be appreciated.

Thanks

Just FYI - My business is web based services (services are offered by web based service providers) - If this makes any difference in your answer.

Answer 1

This is a legal way to operate. If you pay any one person $600 or more in a year, you would provide them with a 1099 and report what you paid them to the IRS. Each of the people should fill out a W-9 form before they get any payments from you. They are independent contractors, and you wouldn't be responsible for employer taxes.

I don't know what the rules might be for CA taxes - the above is for federal.

Answer 2

You are operating a business. Your income is not considered employment wages. You may or may not receive Forms 1099 from the customers you provide the services to. You must keep accurate records of all income and expenses.

The moonlighters working for you probably are YOUR employees. You should submit Form SS-8 to the IRS and get a determination to cover yourself. Mis-classification of employees as ICs is getting a LOT of interest at the IRS and it's only going to get bigger with time. If they are employees you will need to withhold taxes and pay payroll taxes.