>The IRS contractor rules are the most important employee classification rules with any bearing on this discussion, and they are both clear and very well-understood by employers.
You can not say IRS rules are more important than State case law for purposes of classification or this discussion. Such a statement shows the law is anything but clear. Federal/State classifications are an independent determination and require separate analysis.
Example, say A hires B as an Independent Contractor, having focused on complying with only the Federal factors, then B sues A at the State level after being was injured on the job claiming A misidentified B, whereas B claims he was really an employee and should receive workers comp. The Court is not going to apply the Federal Rules/Law they will apply the State Law, in fact we can go ahead and assume B was correctly a Independent Contractor at the Federal Level, but the Court could find under State Law B was classified and the relationship was that of employee/employer now A is liable for failing to comply with State Law and have to pay B's workers comp. This is the exact type of lawsuit that could be replicated hundreds or thousands of times sinking any Start-up, who fails to comply with any aspect of the classification paradigm.
>I am not a lawyer, but I am something like 99.999% sure that 1099'ing an LLC does very little to ensure that a contractor can't be retroactively classified as an FTE for whom W2 withholding was required.
As I said you are correct, just because you pay a company rather than a individual does not automatically make that an Independent Contractor relationship, but it is one factor. For example, in the Florida Worker's Compensation Statute (which provides its own factors, separate from both Florida Case Law and the IRS 20 Factors) factor number 2 reads:
"(II) The independent contractor holds or has applied for a federal employer identification number..."
Just to add some actual cases, there was the $6.5 million settlement by Lowe’s Home Centers as well as a FedEx Ground case, where the idea of "1099ing an LLC" did not protect them.
"Recently, the U.S. Court of Appeals for the Ninth Circuit and the Kansas Supreme Court both held that FedEx Ground had misclassified employees as independent contractors who were operating as business entities or subcontracted additional routes to other drivers."
"Some state laws expressly carve out from their definitions of “employee” status a business entity where the hiring party does not exercise direction or control over the performance of the services and meets other requirements. Thus, companies that wish to minimize independent contractor misclassification liability wisely do not rely solely on the fact that the independent contractor is a business entity."
This is consistent with what I have detailed throughout the thread, i.e. it is a factor in some States with an emphasis in Florida where it is included in the statutory definition of Independent Contractor. I can not imagine any lawyer who would advise their Client to enter an Independent Contractor Agreement with an individual, even if it is not determinative of the classification, it is good business practice and there is nothing to be gained by entering the contract with an individual over a company.
You can not say IRS rules are more important than State case law for purposes of classification or this discussion. Such a statement shows the law is anything but clear. Federal/State classifications are an independent determination and require separate analysis.
Example, say A hires B as an Independent Contractor, having focused on complying with only the Federal factors, then B sues A at the State level after being was injured on the job claiming A misidentified B, whereas B claims he was really an employee and should receive workers comp. The Court is not going to apply the Federal Rules/Law they will apply the State Law, in fact we can go ahead and assume B was correctly a Independent Contractor at the Federal Level, but the Court could find under State Law B was classified and the relationship was that of employee/employer now A is liable for failing to comply with State Law and have to pay B's workers comp. This is the exact type of lawsuit that could be replicated hundreds or thousands of times sinking any Start-up, who fails to comply with any aspect of the classification paradigm.
>I am not a lawyer, but I am something like 99.999% sure that 1099'ing an LLC does very little to ensure that a contractor can't be retroactively classified as an FTE for whom W2 withholding was required.
As I said you are correct, just because you pay a company rather than a individual does not automatically make that an Independent Contractor relationship, but it is one factor. For example, in the Florida Worker's Compensation Statute (which provides its own factors, separate from both Florida Case Law and the IRS 20 Factors) factor number 2 reads:
"(II) The independent contractor holds or has applied for a federal employer identification number..."
[1] http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Displ...