What do I need to do for “Corp to Corp?”
August 12, 2019 1:30 PM Subscribe
I’ve been asked by a recruiter to do Corp to Corp instead of W2. The contract starts soon, it is just myself and I’m hourly. What do I need to do to get this going? Should I push for a W2?
I’ve done some googling and it is all over the place. I sort of feel since this has been pushed hard on me in the past there’s a downside for me. I don’t really care but just want to make sure I get paid. I’m trying to avoid talking to a lawyer about this if this is a simple thing I can do myself. Thanks!
I’ve done some googling and it is all over the place. I sort of feel since this has been pushed hard on me in the past there’s a downside for me. I don’t really care but just want to make sure I get paid. I’m trying to avoid talking to a lawyer about this if this is a simple thing I can do myself. Thanks!
"Corp to corp" may not simply be 1099—they may want you to establish a business entity (such as an LLC or LP) so that they're doing business with a business, not an individual. I'd ask for clarification on that.
I'm a lifelong freelancer, so 1099s are normal to me, but I've had one or two potential clients who refused to do business with individuals, and one that used a cut-out specifically so they could sidestep the problem. I'll admit that I'm not sure what the rationale is. I assume it has something to do with potential for liability.
posted by adamrice at 2:05 PM on August 12, 2019 [1 favorite]
I'm a lifelong freelancer, so 1099s are normal to me, but I've had one or two potential clients who refused to do business with individuals, and one that used a cut-out specifically so they could sidestep the problem. I'll admit that I'm not sure what the rationale is. I assume it has something to do with potential for liability.
posted by adamrice at 2:05 PM on August 12, 2019 [1 favorite]
I would push back hard or decline unless you plan to freelance full-time. My understanding of the structure is that they will expect you to set up a separate corporation, which is not an insignificant investment of time and money on an ongoing basis. The company thinks they are limiting their exposure to you coming back and making a wage claim because you actually work for this corporation that you own.
I am an independent contractor right now but I don't run a corporation. I am a sole proprietor and all it took to set that up was filing for a business license because there is no legal distinction between me and my business. By contrast a corporation is a separate legal entity.
posted by muddgirl at 2:09 PM on August 12, 2019 [2 favorites]
I am an independent contractor right now but I don't run a corporation. I am a sole proprietor and all it took to set that up was filing for a business license because there is no legal distinction between me and my business. By contrast a corporation is a separate legal entity.
posted by muddgirl at 2:09 PM on August 12, 2019 [2 favorites]
This is a little old, but ...http://www.base36.com/2012/07/technical-consulting-taxes-w2-corp-corp-1099/.
posted by chesty_a_arthur at 2:20 PM on August 12, 2019 [1 favorite]
posted by chesty_a_arthur at 2:20 PM on August 12, 2019 [1 favorite]
I agree with muddgirl. Push back on this. They are imposing an unnecessary burden on you if they are requiring you to form a corporation. This costs you time and money. It complicates your income taxes.
See if they are willing to pay you as a 1099 contractor. In that case, you don't need to change anything. They can pay you directly as an individual sole proprietor using your SSN, or they can pay you as a sole proprietorship business with a business EIN. It costs you nothing but a few minutes on the IRS site to get an EIN and in most jurisdictions it costs $20 bucks or less to set up a DBA (Doing Business As). You can choose a name like Geoff's Mega Company, if that makes them feel better, but you don't need to form a corporation.
Keep in mind that you should be charging 150% to 200% of your normally expected hourly wage rate if they are treating you as a contractor rather than a W2 employee. This is to cover all of the contractor taxes you pay and benefits you are foregoing as a contractor (health insurance, social security taxes, medicare taxes, vacation pay, sick pay, unemployment insurance, disability insurance). This has real cost savings for the employer and you should be charging them for it.
posted by JackFlash at 3:40 PM on August 12, 2019 [8 favorites]
See if they are willing to pay you as a 1099 contractor. In that case, you don't need to change anything. They can pay you directly as an individual sole proprietor using your SSN, or they can pay you as a sole proprietorship business with a business EIN. It costs you nothing but a few minutes on the IRS site to get an EIN and in most jurisdictions it costs $20 bucks or less to set up a DBA (Doing Business As). You can choose a name like Geoff's Mega Company, if that makes them feel better, but you don't need to form a corporation.
Keep in mind that you should be charging 150% to 200% of your normally expected hourly wage rate if they are treating you as a contractor rather than a W2 employee. This is to cover all of the contractor taxes you pay and benefits you are foregoing as a contractor (health insurance, social security taxes, medicare taxes, vacation pay, sick pay, unemployment insurance, disability insurance). This has real cost savings for the employer and you should be charging them for it.
posted by JackFlash at 3:40 PM on August 12, 2019 [8 favorites]
Another option I have personally done is work with a mega staffing company like Experian. Client had a corp-to-corp relationship with the staffing company who then hires me as a w-2 employee. This has worked best with large companies that already have a relationship with a contract staffing firm.
posted by muddgirl at 4:27 PM on August 12, 2019
posted by muddgirl at 4:27 PM on August 12, 2019
As an employee your employer will pay employer-side taxes and you will be eligible for unemployment if you are laid off, among many other benefits. As a contractor you will have to pay self-employment taxes, you will not be eligible for unemployment if you are laid off, you won't be eligible for workers comp, etc..
Depending on the details of the work and your location, what your potential employer is asking you to do may be illegal (illegal for them, not for you). It is a widespread abuse of employment law and is pretty much a way for employers to screw employees.
You should look at the numbers and really understand them. You may still decide it's worth it to take this "job" (quotes used intentionally), but if you don't understand the numbers before accepting you'll probably be upset when you do figure out what your actual take home pay is after paying all your taxes.
posted by Winnie the Proust at 8:15 PM on August 12, 2019
Depending on the details of the work and your location, what your potential employer is asking you to do may be illegal (illegal for them, not for you). It is a widespread abuse of employment law and is pretty much a way for employers to screw employees.
You should look at the numbers and really understand them. You may still decide it's worth it to take this "job" (quotes used intentionally), but if you don't understand the numbers before accepting you'll probably be upset when you do figure out what your actual take home pay is after paying all your taxes.
posted by Winnie the Proust at 8:15 PM on August 12, 2019
You need to find out what it is they really want from you.
Do you they want you to work through an established body shop, or can you bring your own LLC or corporation.
Do you they want you to be the W-2 employee of the LLC or corporation, or can you be its individual 1099 even if they don't want you to be their individual 1099.
In any event, you're going to be shouldering all the payroll tax burden, modest administrative cost, the body shop's cut if applicable, and (unless a body shop's W-2) effective ineligibility for unemployment insurance ... price that into your rate!
posted by MattD at 8:28 PM on August 12, 2019 [1 favorite]
Do you they want you to work through an established body shop, or can you bring your own LLC or corporation.
Do you they want you to be the W-2 employee of the LLC or corporation, or can you be its individual 1099 even if they don't want you to be their individual 1099.
In any event, you're going to be shouldering all the payroll tax burden, modest administrative cost, the body shop's cut if applicable, and (unless a body shop's W-2) effective ineligibility for unemployment insurance ... price that into your rate!
posted by MattD at 8:28 PM on August 12, 2019 [1 favorite]
They’re trying to get around payroll taxes and other things that benefit you. It’s not a win-win for all parties. If they insist, I’d significantly increase the hourly I’m charging to compensate for those losses.
posted by quince at 9:16 PM on August 12, 2019 [1 favorite]
posted by quince at 9:16 PM on August 12, 2019 [1 favorite]
It’s not a win-win for all parties.
Contracting certainly can be a win-win for both parties. You just have to be fully informed about how the arrangement works and make sure that you are fairly compensated. Many people prefer the freedom and change that comes with contracting which compensates for the uncertainty and lack of security. Done right, it can also pay better than direct employment and have better hours.
posted by JackFlash at 9:59 PM on August 12, 2019
Contracting certainly can be a win-win for both parties. You just have to be fully informed about how the arrangement works and make sure that you are fairly compensated. Many people prefer the freedom and change that comes with contracting which compensates for the uncertainty and lack of security. Done right, it can also pay better than direct employment and have better hours.
posted by JackFlash at 9:59 PM on August 12, 2019
Depending on the work you are doing, what they may be asking you to do is not entirely legal under the 1099/Independent contractor rule, but could be under Corp-to-Corp -- which still indicates they are trying to shave off personnel costs and possibly Liability and Worker's Compensation insurance. If you go 1099 or Corp-to-Corp you wouldn't be eligible for overtime, so if the contract has tight deadlines you may find yourself working more to complete the requirments of the contract than you anticipated. You need more details before agreeing to a contractor route. As mentioned, a lot of people like those arrangements, and the flexibility it offers.
My company uses all of the above for both commercial and federal contracts. Most of the time it is contractor driven, as opposed to what we want. We may use a 1099 arrangement for people who are working less than 20 hours a week or so. If the company is pushing for something other than a W2, you need to ask them why. Is the gig short time? Do they not want to offset for taxes and benefits? (as others have pointed out, 1099 or corp-to-corp, you are on the hook for both sides of both taxes and social security. And if you are not used to filing quarterly, and paying the govt. quarterly, it can be a pain in the ass.)
I agree with those who say if they really press it, and you decide to go with it, you need to counter back with increased rates to offset all of that, and if it's corp-to-corp, you are likely going to have to carry both liability and possibly Worker's comp insurance, depending on where you are - since they wouldn't cover either for "partner" corporation.
posted by allandsome at 5:45 PM on August 13, 2019
My company uses all of the above for both commercial and federal contracts. Most of the time it is contractor driven, as opposed to what we want. We may use a 1099 arrangement for people who are working less than 20 hours a week or so. If the company is pushing for something other than a W2, you need to ask them why. Is the gig short time? Do they not want to offset for taxes and benefits? (as others have pointed out, 1099 or corp-to-corp, you are on the hook for both sides of both taxes and social security. And if you are not used to filing quarterly, and paying the govt. quarterly, it can be a pain in the ass.)
I agree with those who say if they really press it, and you decide to go with it, you need to counter back with increased rates to offset all of that, and if it's corp-to-corp, you are likely going to have to carry both liability and possibly Worker's comp insurance, depending on where you are - since they wouldn't cover either for "partner" corporation.
posted by allandsome at 5:45 PM on August 13, 2019
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Even if you decide it’s worth it for you to go another way, tell them you only work for W-2 first while you’re learning your options.
There’s bigger context and culture here but unless you’re happy to never get another W-2, I’d recommend pushing for one now.
posted by SaltySalticid at 1:46 PM on August 12, 2019 [2 favorites]