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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).

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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...

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