Skip to comments.Hypothetical employment question for knowledgeable freepers
Posted on 10/07/2013 9:26:21 AM PDT by Abathar
Hypothetical question that has been rolling around in my head for a while, wondering if it would be legal or not.
Lets say I own business X with 40 employees and need to hire 20 more. I want full time employees but insurance costs will be prohibitive if I do.
Business Y nearby also wants to stay under the 50 employee number of full time employees and is looking to hire, or is too close the the red to take on any more full time healthcare costs being demanded now. I'm looking for the stability of a full time employee with the obvious benefits of avoiding Obamacare.
If we were to make an arrangement that every day at lunch we moved 20 employees back and forth between out companies, at the same hourly wages and doing about the same type of production tasks, would that be illegal?
The real reason this question came about is my wife manages a gas station for a bigger midwest competitor to Walmarts. She is having a really hard time scheduling her employees, and she can only offer about 25 hours per week now. She can't get good help because everyone worth having wants full time work (40 hr. paycheck).
Since this is so prevalent now in employment, I was just wondering if company X and Y couldn't work together for mutual benefit while still offering the full time paycheck and stability.
Great strategy...you used variables X and Y - thereby making the message impossible to decode by all the press and Obama voters (same thing, I know).
Could you start a second company with new employees and have your first company contract services from your second company?
Granted most never took an algebra class I’m guessing...
Doesn’t work that way. IRS has specific prior case law from businesses which already tried this, and lost to the IRS , to back up the IRS in auditing/prosecuting you.
You didn’t reinvent the wheel.
I believe that loophole was already filled when they wrote the law, two separate companies with the same owner counts together towards the 50, if I understand it correctly.
“Could you start a second company with new employees and have your first company contract services from your second company?”
The general answer is No, with exceptions.
A contracted worker, a subcontractor, a day laborer, etc, all have been defined under IRS regulations, as well as the distinctions between the different definitions of employment... this has already been through the IRS auditing process (before ACA was made law), and civil and (even a few criminal) court cases.
Under Obamacare all business you own will be counted together, even if they are not related. That way people can’t avoid the 50 employee threshold by merely starting smaller companies.
I figured I wouldn’t have, but why would that have been illegal before Obamacare anyway, unless you were trying to avoid overtime that is.
You are looking for avoidance, which is legal, not evasion, which is not, and that can be a pretty fine line, so you’re almost going to have to get the advice of a tax attorney, to plot strategy.
Yes, closely held related companies are covered under the law.
Non-closely related companies that have intertwining workers are also covered under the law, so arm’s length arrangements like the original poster mentioned would also fall afoul of ObamaCare regulations.
Prior case law dealt with other facets of employment law,
tax withholding laws,
definition of a indepdendent contractor vs employee,
I think some did say this but I think they will eventually catch on. Still, I like your thinking. Myself, I’m only working part-time, eventually I’d like to go to full-time but with Bammycare, I don’t know. In a way, I’m glad to be part-time now, the money is a bit tight, very tight but I need the time right now to care for Mom who is fighting breast cancer and once she gets a bit better, I’ll ask for more hours. I’m 47 myself, like you. I had a good paying, full-time job but the assignment ended just prior to my mother’s diagnosis, if I was in your area, I’d consider the 20/25 hours. I think I’ll be there soon after Mom is a little better where I’m working at. I also do webpages as well, freelancing from time to time, I’d like to work from home eventually. If Bammy keeps up, we will need to create our own jobs.
Every employee that is not full time status where my wife works will be dropped to no more than 25 hours Jan. 1. Almost all of those workers will now have to find a second job to make ends meet. How is it different to the IRS if the employee finds a second job, or you as the employer do it for them though?
I would think that a better strategy would be to create a third company as a contracting agency. Then employees could be 1099 contractors. Just thinking out loud.
I think there are some categories of employees where you can't do this, and your new employees would be responsible for paying SS self-employment tax, estimates for federal and state income taxes, and purchase their own medical plans. Possibly more requirements to be met.
I wouldn't go down that road unless I'd gotten solid legal advice. Also, there is info about it somewhere on the IRS website.
The answer is simple for all concerned.
Just ask John Galt.
Subcontractors and transfers to subsidiary organizations has been a trick used by Japanese companies for over 30 years to avoid outright workforce downsizing. They have a funny reaction in their stock market in that laying off employees is seen as a sign of weakness and bids their price down. Transferring them to a subsidiary, not so much.
I’ve worked as a contractor for TRS inc. (www.gotrsinc.com)
They’ve handled everything from hourly workers to $150/hour professionals. Long term “contracts” have gone on for years. I put it in quotes because if the employer stops paying then the contractor is gone overnight.
They simply plan on paying the penalty for not offering insurance.
Easily avoided by setting up a separate LLC where you aren't the owner, just one of a different team of owners.
ACA is a complicated beast, I only know the insurance sales side, the question of IRS audting/enforcement is generally outside my knowledge, besides instances when potential insurance customers start asking questions like those in this thread, where we always err on the side of caution,
A quick google search came up with this,
Search out the info on ‘closely’ in that link , to get a idea of how many loopholes and problems there are when going done this path of avoidance.
No, the IRS is now counting not only ownership, but operational control and Influence (slippery slope indeed!), in determining what is closely held , related, or interrelated companies, however you want to phrase it.
Do it NOW. The IRS isn’t doing any audits during this down time.
Fair Tax anyone? Now’s the time.
This is a great strategy. For “low” skill workers (gas station, grocery store, etc.) it might work if you can get along with your competitors on the matter.
Here is something else I have been thinking about. Businesses could make all their “employees” (or most or part) “contractors”. This would require each of them to set up their own LLC. But they would be able to pay their employees a lot more as they wouldn’t have to do as much for taxes, SS, Mediare, workman’s comp, etc. The employee would be responsible for all of that. But by my calcs, in industry I am familiar with, this looks like about a 70% pay increase with savings to the company being trasferred to employee.
I believe it is legal. I recently read about franchisees of fast food restaurants who are doing just this. One person owns one franchise for Hamburger, Inc. in one neighborhood, and another person owns the franchise for Hamburger, Inc. in the neighborhood down the road. They agree to hire the same person on a part-time basis, and coordinate hours. That way, the worker gets to work more hours, but each employer keeps them below 30 hours and avoids ObamaCare.
sounds like a good idea to me
She accidentally stood me up for an appointment once. When I arrived, her assistant handed me an envelope with the full cash payment for the services I had been scheduled to render, including my transportation costs and a little extra for my trouble.
I know someone who has done exactly that, successfully. After we went through it, he proved (at least to me) that is was legal and proper in this state.
I'm amazed at the number and skill sets which our plant can already get from such agencies. You would be naive to think competitors don't cooperate to move employees between them to avoid the hour limits.
Whatever you do don’t tell the employees your strategy. Obamacare has a whistleblower clause. If you have an Obot in the know on staff they can inform the government and be granted iron clad status. You cannot demote, fire, cut hours, pay, etc for that employee. Not only are you busted, you are stuck with the rat forever.
The biggest problem with 1099 employees, and I use them all the time, is that many are too greedy to not set aside the 30% or more of their check when they get it in to cover the taxes at the end of the year.
I had one guy literally break down and cry a few years ago when I told him I had to 1099 all the money I had been paying him for the lathe work he had been doing for me in his little garage.
He even offered me cash to lose the thing, I had to tell him my accountant takes care of all that and I sure as hell wasn’t going to get audited because he decided to buy a new truck and pay cash rather than set some aside for taxes.
I almost guarantee it got “lost in the mail”.
Almost exactly the scenario I was thinking of.
I’d open a third Company A, fourth Company B and fifth Company C as necessary. Hire 29 hour (or full time) contract workers at Companies A, B and C who bill by the hour to your 49 employee Company X and your neighbor’s Company Y.
Each company (A,B,C,X,Y) stays under 50 employees. You can work folks either full shifts or 29 hour shifts as necessary.
Just make them separate, shell companies with contract workers. You can make it look legitimate enough. There are lots (and there will be even more) contracting companies. You can even start these for others.
yep, they’d probably charge you with conspiracy to avoid obamacare taxes or aiding and abetting a violation
Sell the company, take the tax hit and move somewhere that is warm and has a beach.
I have a friend who did that with his restaurants. Four locations, less than 50 employees each. All separate corporations, all “owned” by different family members.
The Feds have already told him that because the owners are all family, it is really one business and that for the sake of labor laws, taxes, etc., it will be considered one company.
He is fighting it, but his lawyer has told him that lately the government makes up the rules as it goes along and that Democrat appointed judges are rubber stamping the government’s actions.
Why not operate a separate staffing company?
I’m 4th generation in this business, I’ve already explained to my son there’s a snowballs chance in hell he is ever working here and not to even dream of taking the place over.
It sucks, but there is no way I’m burdening him with all the sh*t we have to put up with, if he wants to go it alone I’ll do whatever I can to help him, but I will not put the burden of following in my footsteps on him.
Every year your idea is looking better and better.
I smell a business opportunity.
Open a staffing company.
Hire 49 people.
Allow them to work 29 hours maximum each.
Bill local companies.
Sit back and watch the cash flow through, take a cut for billing the services.
How hard can that be?
Heck, if the government doesn’t like you hiring out your workers at your Company A to your Company X, then get your buddy to open Company M and hire out to your Company X.
Then, you open Company N, and hire out to his Company Q.
Scratch each others’ back with staffing agencies.
You have arms length transactions all around. No co-ownership.
Billing $ / Hour: 12
Days / Week: 5
Weeks / Year: 50
Total Revenue: $4,263,000
Owner’s Takehome %: 10%
Owner’s Takehome $: $426,300
IF they are looking for a job & don’t realize that 40 hour weeks are not being used under Obama, they are too stupid for your wife to want to hire them.
This current economy isn’t going to support a person who demands a 40 hour week. They will be lucky to find 2 .. 20 hours a week jobs.
If I own an ice cream shop and the guy across the street owns a sandwich shop, can we agree to share the same workers @ 20 hours each, so the two independent businesses stay under the limit while the workers get guaranteed 40 hour work weeks?
Make it a dry cleaners and a liquor store. Any two unrelated mom-and-pop businesses that only have proximity in common.
Absolutely legal and a good way to subvert the tyranny.
if she’s going to switch some to 40 hours a week, that should make scheduling easier, as these people will be taking 15 extra hours a week.
further if there is no federal exchanges set up inthe state she’s in, that means no federal subsidies to these people to pay healthcare costs, which are skyrocketing as planned. if the costs of coverage are more than 8% of these peoples wages they are exempt from the individual mandate and the employer is exempt from the penalty for that employee not being covered by the business. and they will be more than 8% of the person’s wages so it works out.
two separate companies with the same owner counts together towards the 50, ...She didn’t say the same company or same owner.
Obama is five steps ahead of you.
He has the IRS out there investigating companies with common ownership ties. If they find you employing a strategy like this, fines and penalties will be forthcoming.
They will treat all enterprises as being one company.