Good evening, SF.

I'm on the verge of taking on a side job, and pretty excited about it. We haven't talked about pay yet, aside from acknowledging that we need to.

Several years ago I set up an LLC ahead of a project I thought would take off well. (It didn't, but that's another thing.) Anyway, I'm wondering now what's the right/proper/fair way to get paid for the new project.

Options I see:
* The company pays the LLC, which pays me. Mine is a single-member LLC, for what that's worth.
* The company puts me on its roll as a part-timer.

I don't know if there's any advantage to either me or to the company to use one method over the other, so (naturally) I thought I'd ask here. Is one option better or more fair or easier to deal with than the other? Is there another option? Or am I just overthinking it altogether?

Independent contractor.

If the company pays the LLC, you will be responsible for the employer portion of the FICA tax (Social Security and Medicare). The company make even require you to carry certain business insurance like Workman’s Comp or General Liability insurance.

On the upside you may be able to deduct certain expenses like the cost of a home office or mileage.

The company should of course pay you more as an independent contractor to cover the obligatory FICA taxes.If lyou make enough you will be required to pay taxes quarterly. As an independent contractor you set your hours of work and provide your own tools. Choice is up to you. I have always been an independent contractor.

I am just a business guy who have to make this choice often.

It depends.

First, the differential between what the company is willing to pay on 1099 or corp to corp and W2. Last time I checked the addition taxes were min extra 7.65% for the business side of Social Security and Medicare. Up to the limits.

You need to file quarterly or have someone or a company do it for you.

Another cost above the 7.65.

Cost of the annual fees and fees to file your LLC return if you don't do it yourself

So you really need to run YOUR numbers to make a choice.

Before I run the numbers I want the differential to be at least 12% to even sit down to do the calculations.

When I run the numbers most time it is better to be paid W2, unless there is enough allowable deductions and differential.

This also changes if you planning to have more than one client or if it pushes you into a higher tax bracket before deductions.

You need to talk you your accountant and have him run your numbers.

Without knowing more about the side job, it sound like you would be an independent contractor. You can check out IRS form SS-8 to help determine whether or not you're an employee or contractor.

If the company pays you as an employee you pay 1/2 of SS & Medicare. If the company pays you as an independent contractor it makes no difference whether they pay the LLC or you, IRS does not recognize a single entity LLC. You are then self-employed and will file the income on a schedule C. As self employed you deduct 1/2 of the self employment taxes from your 1040 income. When you add State & Local taxes to the LLC cost you may pay more than if you are paid as an employee or as a 1099 independent contractor. In Tennessee a single entity LLC is expensive as you must pay F&E taxes (bonus depreciation is not allowed), gross receipts tax, personal property tax, Workers Comp exemption if you are in construction, and a CPA to do all of that. Every state is different.

If you're in a position that you are discussing with the company whether they should pay you as an employee or as an independent contractor, then the bottom line for me would be how much will they pay you as an employee versus as an independent contractor. Usually, it's the company that makes the call, depending on whether they want to take you on as an employee which means they'll pay half of your social security, state disability, have you accrue vacation time, pay medical insurance for you, and give you the benefits they give to their other employees.

You should have a sense as to either employee salary or independent contractor pay they will give you is fair for the services you will provide. Assuming either is fair, then it's a mathematical calculation whether the total benefits you will get being paid as an employee is greater than the net benefits you will get being paid as an independent contractor after you pay for your own medical insurance, social security, state disability, and not accruing vacation time.

If the company is fair and apart from their policies, they should be indifferent to paying you as either. What may sway their choice would be whether they have the overhead and resources in place to manage independent contractors.

Thank you for the responses so far. It looks like I have some learning to do with respect to independent contractor status.

I'm thinking it'd be easier (for me) if they'd just pay me as an employee. I won't be earning any vacation time or benefits; it's just dollars-for-time, so to speak.

quote:

Originally posted by ZSMICHAEL:
Independent contractor.

This, unless the hiring company offers benefits to part-timers (and you need those benefits, and your LLC doesn't qualify for such).

I am thinking along the lines of medical insurance, where rates can be significantly lower for those in a pool, and retirement plans, where 401K contributions can augment IRAs, etc.

If your LLC doesn't already have a SEP-IRA plan, you should probably look into this as an option.

I would normally favor the independent contractor route because of the Sched. C deduction possibilities. Not that I would ever suggest using business assets for personal use, but there are a lot of things that you might buy as a business that can be deducted on Sched. C, thereby lowering your tax burden from your contractor income.

Not an accountant, but self-employed for over 30 years, now effectively retired (business is still potentially profitable, but client list has shrunk to zero).

quote:

Originally posted by architect:

quote:

Originally posted by ZSMICHAEL:
Independent contractor.

This, unless the hiring company offers benefits to part-timers (and you need those benefits, and your LLC doesn't qualify for such).

I am thinking along the lines of medical insurance, where rates can be significantly lower for those in a pool, and retirement plans, where 401K contributions can augment IRAs, etc.

If your LLC doesn't already have a SEP-IRA plan, you should probably look into this as an option.

I would normally favor the independent contractor route because of the Sched. C deduction possibilities. Not that I would ever suggest using business assets for personal use, but there are a lot of things that you might buy as a business that can be deducted on Sched. C, thereby lowering your tax burden from your contractor income.

Not an accountant, but self-employed for over 30 years, now effectively retired (business is still potentially profitable, but client list has shrunk to zero).

Absolutely. And a self employed 401K is a wonderful thing.

You might want to run some scenarios through an actual payroll tax program.

I use Medlin Payroll to do the payroll tasks for my small business.

They have a 30-day free trial, so you can download it and run all the tests that you want, during that 30-day period.

Caveat: This program requires a Windows evironment. I'm a Mac user, so I run Medlin in a Windows VM (Virtual Machine).

Medlin link

When I faced a similar decision, I ended up choosing the independent contractor route because it gave me more flexibility with my time and allowed me to deduct expenses like my home office and mileage. That being said, it does come with extra responsibilities like paying self-employment taxes and staying on top of quarterly filings; hiring an accountant was a lifesaver for me.

If you're in Singapore and considering business-related requirements like insurance, platforms like WICA Insurance can help simplify things. They connect businesses with work injury compensation insurance options tailored to their needs— see details.

This message has been edited. Last edited by: rcpylon,

quote:

And a self employed 401K is a wonderful thing.

And a SEP-IRA a wonderful thing in a bigger bowl with sprinkles on top. Plus zero costs of maintenance.

OP doesn’t mention his age. If he’s already pulling SS he needs to factor in the impact of that 1:2 reduction in benefits for earned income.

If he’s still working he needs to be sure he’s not running afoul of any agreement there. Or obligations.

Lots of factors to consider beyond just the pay part.

LLC can give tax and other benefits but there are other costs besides just the payroll part.
For instance, basic business and other insurance could be need, licensing, extra accounting costs, potential legal exposure if the main company gets sued for something you're working on as a subcontractor, etc.

You really need to have more specifics and sit down with an accountant. Maybe an attorney too. Before you go any farther.
Money well spent.

Thanks, all, for your input.

As it turned out, the prospective "side employer" hasn't been heard from in several months. I'm not sure what happened there, but it's okay. I've got plenty to do at my "real" job (started about a six weeks after the original post), and I'm enjoying some much smaller-scale side projects.

All good!

If it's a temporary gig I'd work it as a 1099 to keep things simple. If it's a hazardous job or has liability implications I don't know, though there are lots of Sigforum members who do.