[larzang]

Something I never see mentioned in these discussions is the surprisingly high hurdles to actually operating a distributed company. You'd think in 2021 it wouldn't be difficult to have employees doing knowledge work in multiple US states without running face-first into laws governing conducting actual business in multiple states, but that's not at all the case. International is even worse. The additional complexity and costs of having non-local employees can absolutely be prohibitive, leading some companies to just abuse 1099 status.

This obviously isn't a problem if you're FAANG or Salesforce, but for a company of 20 it is.

[pimterry]

I've worked in a ~50 person distributed company - the practical contracting steps weren't a big issue.

You pay everybody outside your local jurisdiction as contractors, and you pass on the significant savings to them as salary, so they can approximate the normal employee benefits purchased directly for themselves. I understand this is a bit more complicated in the US as health insurance is a key benefit, but not impossible, and that's not a problem in most of the rest of the world.

Employees do need to register locally as freelancers, file invoices & do taxes, but that's a relatively simple process for such cases everywhere I'm aware of, and any costs can be included in the salary bump. We made it work with no big problems or complaints for anybody in the 2 years I was there.

[ghaff]

I don't know all the details but even having distributed employees as W-2 workers with full benefits can't be that hard. I worked for a 10 person company with employees in a few different states plus the UK and they were able to make it work.

[redisman]

See but that’s not that great for the employee. Making them do accounting and “breaking” tax law on pretending to be independent contractors.

https://gosmallbiz.com/the-independent-contractor-checklist/

[cigaser]

Why not hire people as contractors? So far it worked great for us.

[woeirua]

The vast, overwhelming majority of "independent" contractors on 1099s do not actually qualify for that status as defined by the law. Most of them should be W2 employees per the law.

The only reason most companies get away with this arrangement is because the government has refused to enforce it except in egregious cases, and ignorance on the part of the employee.

But it's a pretty tenuous situation. See Uber in CA.

[secondbreakfast]

> The additional complexity and costs of having non-local employees can absolutely be prohibitive, leading some companies to just abuse 1099 status.

[cigaser]

Is it about medical insurance or something like that? I do not understand why it would be abuse.

[hasmolo]

so as a 1099 the employee has to pay all of the standard taxes a business would pay and they’re entitled to far less of the employment social safety net.

when you 1099 an employee you force them to bear your tax and benefit burden. people who take the 1099 job do so because they don’t have a w2 offer or don’t understand. a 1099 has far less net profit at the same salary as w2. this is how contractors maker more money but have less real income

[texasbigdata]

So to be specific there’s a very negligible tax arbitrage which actually favors the employee not the employer but conceptually in the compliance case described above the employer would actually be net neutral to paying the tax adjusted rate (aka their outflow) to the employee and it’s not set out to be some great scam.

[cigaser]

Employer should pass tax savings to employee. Maybe also pass savings from not running local branch.

I looked up 1099 calculator. For Arizona total self employed tax is about 20%. That seems quite fair.

In EU I prefer self-employment. I can put car, home office and even babysitting into expenses and save on taxes.

[shagie]

Even with passing on the tax savings, there's also things like health insurance and some form of retirement matching.

An employer paying a group rate for health insurance will pay less per person than an individual paying an individual rate.

Even if the employer were to pass on the savings of not having the person in the group health insurance, the 1099 contractor would need to pay more to get the same coverage.

And beyond that there are things like a 401k matching or a pension that a full time employee has that a contractor doesn't have access to.

[JAlexoid]

European model is very different to US.

I used to do contracting all over EU.... and it was pure bliss. Even with VAT "complexities", it's still about a million times easier to do taxes as a contractor in EU/UK, than it is to do your own taxes in US.

The final thing about contracting in US is that average employer cost of health insurance is over $20k per employee. If you don't fall under someone else's employer sponsored healthcare plan, your self employment income will be greatly diminished. (In US freelancers don't get huge bumps in hourly rates, just because they're not full time benefited employees)

[secondbreakfast]

There are rules around who's allowed to be classified as a 1099. If you're employed full time and told how to perform your job, the government is likely going to determine you're a W2. This is likely what OP meant by "abusing" the 1099 status.

[crims0n]

I can attest to this. There was a delay in my hiring process because the company that hired me needed to set up some kind of entity for tax purposes in my state - they had nobody else operating out of there at the time.