Contract pilots are really employees

[coloneldan]

Here is something everybody doing contract work should be aware of. You might want to tell the people who hire you about it, although they won't be happy to hear it.

According to the IRS, a contract pilot is not an independant contractor. He is an employee. If the company that hires one doesn't withold taxes from his pay, they are guilty of tax evasion. Issuing a 1099 won't cut it.

This link is from the March Aviation International News.

www.ainonline.com/Issues/03_06/0306_irs_10.htm

 

[NuGuy]

Heyas,

The same goes for Flight Instructors that have to pull ANY desk duty.

The first and every time the boss says that you have to answer phones, sweep up the place, schedule you or insist that you are present at a certain time, keep a record of it. CYA

Nu

 

[Wang Chung]

Wow - interesting article. I just forwarded that link to a bunch of folks I know that are affected. Colonel- you're right about certain employers not being happy about this one...assuming they "didn't know" in the first place.

 

[timeoff]

Read on.

http://www.irs.gov/publications/p15a/ar02.html#d0e389

There isn't a single instance where a pilot would "technically" fall into the subcontractor/independant contractor category.

For you guys at your first year doing contract work, prepare to get stung on taxes. SE tax is around 15% right off the top (your portion of FICA and your employers is now paid by you), plus your respective income tax. Since you aren't actually a business, you won't have very many expenses to offset your income, therefore keeping you in a higher tax bracket. 75k a year will earn you about a 12k-15k tax bill come April 15th.

In the end you lose, even though your paycheck looks bigger ever week. Been there, done that (not as a pilot obviously). I owe more to the IRS than I do on my house.

 

[coloneldan]

Hey Wang Chung, I think I'm in love with your avatar. Do you think she would marry me? I'm a pilot ya know. :nuts:

 

[SKYLAWYER]

Just a reminder also, there is no statue of limitations on IRS tax evasion issues. They can revisit it 35 years later and demand the interest on the money they find due. The firm I work at (non-lawyer work mostly paralegal stuff, still 1.5 years away from graduation, tossing the gear in the mean while) was recently involved in a case where a flight school was hit was a huge tax bill and was forced to shut down due to years of hiring free-lance instructors. The IRS held the position that because the owner required specific schedules for the instructors they were actually employees. The bill forced to school to shut-down and liquidate its assets to settle the huge tax burden.

 

[User546]

You saying we're suppose to report this stuff in the first place??

You guys must not have as good of an accountant as I do...

 

[jimpilot]

Opinions

Here is something everybody doing contract work should be aware of. You might want to tell the people who hire you about it, although they won't be happy to hear it.

According to the IRS, a contract pilot is not an independent contractor. He is an employee. If the company that hires one doesn't withold taxes from his pay, they are guilty of tax evasion. Issuing a 1099 won't cut it.

This link is from the March Aviation International News.

www.ainonline.com/Issues/03_06/0306_irs_10.htm

Of course one must consider the source. Margaret Vernet, president of Corporate Aviators of Newtown, Conn. is in the business of selling a service that would grow greatly if flight departments started using her service to protect them selfs. I notice no IRS rulings etc. are mentioned only her opinions.

 

[coloneldan]

Of course one must consider the source. Margaret Vernet, president of Corporate Aviators of Newtown, Conn. is in the business of selling a service that would grow greatly if flight departments started using her service to protect them selfs. I notice no IRS rulings etc. are mentioned only her opinions.

Keep reading. Check out Starbucks and Microsoft. You could be right of course. I haven't investigated this yet, but I will.

 

[Corona]

Of course one must consider the source. Margaret Vernet, president of Corporate Aviators of Newtown, Conn. is in the business of selling a service that would grow greatly if flight departments started using her service to protect them selfs. I notice no IRS rulings etc. are mentioned only her opinions.

Bingo. AIN has not always been a provider of exhaustive journalism. They found a solution in search of a problem in order to sell copy. No news there, anyway.

I worked for a certain well-known flight school chain that insisted on paying everyone as a contractor. But, they also required a specific show-time in the A.M., as well as dictating a very specific training regimen for their students. They have switched to the standard employee model and my guess is they either got caught or managed to get good legal advice. That was a pretty obvious violation of the law.

Contract pilots are in a much grayer area. They are professionals, and are offering services to the general public, so to speak. Although the time, manner and place of work are not negotiable, the ability to decline the work is.
It is an interesting question, though I wouldn't be given to panic as Ms. Vernet might wish.

C

 

[filejw]

It would be interesting to see if anybody has challenged this rule.Just saying the employer is controlling when you work seems pretty weak to me.

 

[minitour]

You saying we're suppose to report this stuff in the first place??

You guys must not have as good of an accountant as I do...

lol like mine?

"Do you have any safety equipment?"

"well, I've got these here charts (US Subscription of Jepps) and this here headset...that's about 2 grand in itself"

"But are they safety related items?"

"Tell ya what...we'll go fly around in the clouds for an hour, me without my charts and headset and you tell me how safe you feel..."

*him giving me blank stare*
"........right so two grand?"

-mini

 

[User546]

"Tell ya what...we'll go fly around in the clouds for an hour, me without my charts and headset and you tell me how safe you feel..."

Mini, you could have your charts and your headset, and I still wouldn't feel safe flying around in the clouds for an hour with you!

Me kid, me kid... couldn't resist!

 

[minitour]

Mini, you could have your charts and your headset, and I still wouldn't feel safe flying around in the clouds for an hour with you!

Me kid, me kid... couldn't resist!

Well I don't really fly anyway...Otto does all the work, I just push buttons.

-mini

 

[Resume Writer]

I do not see how a contract pilot could fall into the contractor rules, as the employer usually has a prescribed set of rules and standards. As stated in the article, if the employer directs the work, you use their equipment, etc., then you are an employee. The woman in the article is stating the facts as they are written in the IRS code. Of course, I am not a tax attorney - but I did stay at a Holiday Inn Express last night!

There are many employers who try to get away with this because they do not want to pay unemployment taxes, worker's compensation, etc., on you.

 

[sky37d]

But, (knowing nothing about the subject, you understand) I remember reading that someplace would hire contract pilots for a day, when the regular crewmember couldn't fly. Are those contract pilots then, for the day, regular employees? I can see a ton of paperwork, before any flight planning or flying.
Seems somewhat ridiculous.

 

[Resume Writer]

But, (knowing nothing about the subject, you understand) I remember reading that someplace would hire contract pilots for a day, when the regular crewmember couldn't fly. Are those contract pilots then, for the day, regular employees? I can see a ton of paperwork, before any flight planning or flying.
Seems somewhat ridiculous.

I think a lot of it has to do with control over the person, and whether the person can offer those services to other people.

Here is what I found on the definition of employer versus contractor:

IRS 20-Point Checklist
How do you determine if a contractor should be paid on a W-2 or a 1099?
The IRS has established a 20-point checklist the can be used as a guideline in determining whether or not a contractor can legally be paid on a 1099. This checklist helps determine who has the "right of control." Does the employer have control or the "right of control" over the individual's performance of the job and how the individual accomplishes the job? The greater the control exercised over the terms and conditions of employment, the greater the chance that the controlling entity will be held to be the employer. The right to control (not the act itself) determines the status as an independent contractor or employee. The 20-point checklist is only a guideline, it does not guarantee that a person is correctly classified. There is no one single homogenous definition of the term "employee." Most agencies and courts typically look to the totality of the circumstances and balance the factors to determine whether a worker is an employee.
Following are the 20-points that have been established:

1. Must the individual take instructions from your management staff regarding when, where, and how work is to be done?
2. Does the individual receive training from your company?
3. Is the success or continuation of your business somewhat dependent on the type of service provided by the individual?
4. Must the individual personally perform the contracted services?
5. Have you hired, supervised, or paid individuals to assist the worker in completing the project stated in the contract?
6. Is there a continuing relationship between your company and the individual?
7. Must the individual work set hours?
8. Is the individual required to work full time at your company?
9. Is the work performed on company premises?
10. Is the individual required to follow a set sequence or routine in the performance of his work?
11. Must the individual give you reports regarding his/her work?
12. Is the individual paid by the hour, week, or month?
13. Do you reimburse the individual for business/travel expenses?
14. Do you supply the individual with needed tools or materials?
15. Have you made a significant investment in facilities used by the individual to perform services?
16. Is the individual free from suffering a loss or realizing a profit based on his work?
17. Does the individual only perform services for your company?
18. Does the individual limit the availability of his services to the general public?
19. Do you have the right to discharge the individual?
20. May the individual terminate his services at any time?

In general "no" answers to questions 1-16 and "yes" answers to questions 17-20 indicate an independent contractor. However, a simple majority of "no" answers to questions 1 to 16 and "yes" answers to questions 17 to 20 does not guarantee independent contractor treatment. Some questions are either irrelevant or of less importance because the answers may apply equally to employees and independent contractors.

Here is the same information, just sort of backwards coming from a contractor perspective:

An individual who performs services for any person (in this section referred to as the "service recipient") shall be presumed to be an employee of such person unless all of the following requirements are met:

1. The individual makes comparable services available to the general public on a regular and consistent basis and represents himself as an independent contractor with respect to such services.
2. The individual has performed, or is available to perform, services for more than one recipient at the same time.
3. The service recipient does not have the right (and does not attempt) to control the manner or means of the individual's performance of such services.
4. The individual controls the means of performing the services, including setting the sequence and hours of work.
5. The individual operates under contracts to perform specific services for specific amounts of money, the rate of which is negotiated for every service performed.
6. The individual may realize a profit or suffer a loss under contracts to perform work or services.
7. The individual is responsible for the satisfactory completion of the work that the individual contracts to perform and is liable for a failure to complete the work.
8. The individual incurs significant unreimbursed capital expenses (not typically incurred by employees) in carrying on the business activity in which such services are performed.