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Comment by scottw | Hacker News Reader

Discovery (DISCA) faced this issue in 2008 and decided to lay off all employees who lived in a state with this tax nexus law (I was one of them). There were a total of three employees in my state, but there were probably scores of employees around the country. They probably saved several million dollars annually in sales tax by doing this (back of the envelope calculations). A handful of the employees affected in my group were re-hired as contractors.

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Note that as a company you can't just re-hire as W2 contractors. Generally (as the article states) you need to have the employees form some sort of corporate entity or work for a corporate entity. Both employment and tax law will treat solo W2 contractors (or even single member LLCs) as full time employees if you're working full-time for a single entity.

A lot of times companies will hide these types of contractors behind agencies, but its a tricky balance. Point being if you run a small company and are running into these types of issues talk to an accountant and or an employment attorney before thinking you can just hide full time employees behind a "contractor" label, its not a fool proof solution.

Where did he say he anyone was rehired as a W-2 contractor? 1099 could be possible (except for the whole work-for-hire IP issue).

For the IRS or Employment law whether or not you are a fulltime employee has nothing to do with how your taxes are filed or paid. My point for those on this board who hire remote employees is that simply re-hiring as a "contractor" does not change them into "not a full time employee"

Well, then the case could be made that they were incorrectly being treated as employees and should have in fact been contractors.

The IRS looks at the common law rules between the two entities, based on three categories:

Behavioral: http://www.irs.gov/businesses/small/article/0,,id=179111,00....

Financial: http://www.irs.gov/businesses/small/article/0,,id=179113,00....

Type of Relationship: http://www.irs.gov/businesses/small/article/0,,id=179116,00....

There is even an IRS form, SS-8, which you can submit to the IRS to 'clarify' how the relationship should be treated...

http://www.irs.gov/pub/irs-pdf/fss8.pdf

All of this information is available here:

http://www.irs.gov/businesses/small/article/0,,id=99921,00.h...

A handful of the employees affected in my group were re-hired as contractors.

Those states are going to have a field-day in the event of an audit. We had a ton of trouble recently with a contractor (who worked on his own time, with his own equipment, for a specific duration on a project)... I can only imagine what states will see when they find out they brought back former employees. It's going to be very difficult to justify them as contractors.

Can you clarify what state and what kind of trouble you had with the contractor? Were they contracting through a corp/LLC?

This is a bit late, but oh well.

It was a single contractor, working on a project tangential to our primary codebase (an add-on product). He had several other clients and projects at the time and was paid by the hour for the work.

Part of the issue was that he was operating as sole proprietor, which meant he had no legal entity for his work. The state wanted to see that he was operating as a business and the lack of any legal entity surrounding his business made that a bit difficult.

We managed to get it sorted.. took more of our time than I'd like tho.

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