Contract Instructor
 

Hey everyone. I had a question or two about being a contract instructor. I'm supposed to be a contracted instructor at the airport I work at. Rather than point out a name of who it is I'll just call the business "FBO." The thing is, I've heard that if you have to buy your own "FBO" logo'd clothing (especially if you are required to wear it) you aren't contract. Also I've read that if your student pays "FBO" then you get paid from "FBO" (after they take their $25 cut) then that's another good sign that you aren't contract. I also have a boss or two. Doesn't sound very contract to me. I also signed a paper when I was hired that said I'll take care of my own Social Security/Workmans Comp./ State and Federal taxes. So I called my boss to ask about these things and he said I'm a 1099. The boss also said that I can make more money this way as long as I stay on top of things and put something aside for April. I don't know taxes too well yet, seeing as I'm only 21 and haven't filed more than 2 or 3 of my own returns. So help me out guys and girls, does this sound fishy to anyone? I'm going to an H&R Block to seek some help soon, but until then does anyone have their 2 cents to throw in?

P.S. I'll let you all know the details from the H&R Block people because I'm sure I'm not the only one questioning this.

My old flight school took care of W-2's etc, so I wasn't a 1099 employee in that sense, but we could technically be considered contract because if you're "Full-Time" then you go into the realms of disability etc... So yes, you're contract, I think it's BS you have to buy the clothing, but some places do that. All depends on what you think you're worth, etc..

This might be a good post for the Av. Law forum as well, but here's the way it was explained to me. It depends on who "directs" you. Does the FBO set a cirriculum and expect you to follow it? Do they assign your students? Do your students pay the FBO?

In your case, it sounds like this is true, and from my understanding, that would point to you being a non-contract employee. Your employer should be doing a W-2 instead of a 1099.

This is also bad from a liability standpoint... it exposes the "contract" CFI to more liability than if they were one who was an employee of the FBO. Sounds to me like your employer is doing something a bit shady.

Ya when I called the boss he said that it saves him money somehow and that the CFI's that work for him actually make more money in the long run as well. Either way the IRS and uncle sam are going to get their fair share and then some when April comes around. I guess I just have to stay on top of things and put some money aside or do the quarterly payment thing. It almost sounds easier to just find a new job where they aren't afraid to call me an employee and cover my butt in an accident. I love the CFI gig but I have honestly only found one problem with it. Liability. And lots of it.

It's bs. His insurance is cheaper, and he doesn't have to make employer contributions. Also, your butt is hanging out there for liability and legal expenses if something bad happens. With this industry and the legal system we have, the risk is very, very big.

Another user posted a very similar question. Please look this over and if it is not on point to your question, feel free to ask with more specificity.

http://www.airlinepilotforums.com/mo...cfi-taxes.html

I found a link to the IRS website that helps a bit. Just Google "contract employee taxes" and the IRS link should be the first one to pop up. It seems that first you have to determine if you are an independent contractor, an employee (common-law), a statutory employee, or a statutory nonemployee.

A few paragraphs down it actually says that an employer can be held liable for "Misclassification of Employees" and therefore may be "held liable for employment taxes for that worker."

The only problem I found is that an instructor can be called a statutory nonemployee if... "Their services are performed under a written contract providing that they will not be treated as employees for Federal tax purposes." And I signed that contract. Lovely.

Yeah... you're getting shafted by your boss.

I had a chance to look up the legal term now that I'm home from work. Google "Right to control and direct". That should get you pointed in the right direction. If the company has the right to "control and direct" then you are not a contractor.

But then again where am I going to get any other job being a standard CFI with around 600 TT and only 2 of those ME. I've heard of paying my dues but this is some shady business if you ask me. Oh boy I'm going to shut up before I say too much haha

Oh well, I do know that at least the uniforms are tax deductible.......

Independent Contractor or Employee
 

The courts have considered many facts in deciding whether a worker is an independent contractor or an employee. These relevant facts fall into three main categories: behavioral control; financial control; and relationship of the parties. In each case, it is very important to consider all the facts – no single fact provides the answer.

Behavioral Control
These facts show whether there is a right to direct or control how the individual does the work. An individual is an employee when the business has the right to direct and control the individual. The business does not have to actually direct or control the way the work is done – as long as the employer has the right to direct and control the work. For example:

Instructions – if the individual receives extensive instructions on how work is to be done this suggests that the individual is an employee. Instructions can cover a wide range of topics, for example:
· how, when, or where to do the work
· what tools or equipment to use
· what assistants to hire to help with the work
· where to purchase supplies and services

If the individual receives less extensive instructions about what should be done, but not how it should be done, the individual may be an independent contractor. For instance, instructions about time and place may be less important than directions on how the work is performed.

Training – if the business provides the individual with training about required procedures and methods, this indicates that the business wants the work done in a certain way, and this suggests that the individual may be an employee.

Financial Control
These facts show whether there is a right to direct or control the business part of the work. For example:

Significant Investment – if the individual has a significant investment in his/her work, they may be an independent contractor .While there is no precise dollar test, the investment must have substance. However, a significant investment is not necessary to be an independent contractor.

Expenses – if the individual is not reimbursed for some or all business expenses, then the individual may be an independent contractor, especially if the individual’s unreimbursed business expenses are high.

Opportunity for Profit or Loss – if the individual can realize a profit or incur a loss, this suggests that they are in business for themselves and that they may be an independent contractor.

Relationship of the Parties
These are facts that illustrate how the business and the worker perceive their relationship. For example:

Employee Benefits – if the individual receives benefits, such as insurance, pension, or paid leave, this is an indication that they may be an employee. If they do not receive benefits, however, they could be either an employee or an independent contractor.

Written Contracts – a written contract may show what both the individual and the business intend. This may be very significant if it is difficult, if not impossible, to determine status based on other facts.

Businesses and workers must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.
Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.
Generally, whether a worker is an employee or an independent contractor depends upon how much control the business owner has. If they have the right to control or direct not only what is to be done but also how it is to be done then the workers are most likely employees. If they can direct or control only the result of the work done, and not the means and methods of accomplishing the result, then the workers are probably independent contractors.
When You Are an Employee

• Your employer must withhold income tax and your portion of social security and Medicare taxes. Also, your employer is responsible for paying social security, Medicare, and unemployment (FUTA) taxes on your wages. Your employer must give you a Form W-2, Wage and Tax Statement, showing the amount of taxes withheld from your pay.
• You may deduct unreimbursed employee business expenses on Schedule A of your income tax return, but only if you itemize deductions and they total more than two percent of your adjusted gross income.

When You Are an Independent Contractor

• The business may be required to give you Form 1099-MISC, Miscellaneous Income, to report what it has paid to you.
• You are responsible for paying your own income tax and self-employment tax of 12.4% (Self-Employment Contributions Act – SECA) on your earnings. The business does not withhold taxes from your pay. You may need to make estimated tax payments during the year to cover your tax liabilities for both state and federal taxes. If the estimated payments are not sufficient to cover the tax liability, you may be subject to underpayment penalties on both the state and federal level.
• You may deduct business expenses on Schedule C of your income tax return.