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Comment by EvanAnderson | Hacker News Reader

The "have a company" route isn't necessarily a magic bullet if you're not working with multiple clients.

One of our clients (a Fortune 1000 company) had a program to weed out mis-classified contractors (individuals who really should have been employees). They demanded proof our LLC wasn't just contracting with them. It wasn't a problem for us, fortunately, but the one-man shop w/ a single client might not have fared as well. (It's also unclear to me why somebody would do that, but that's another topic...)

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This. I run a sole proprietorship LLC for platform engineering consulting services.

I’ve had CA companies give me a hard “no” until they learned I was incorporated in AZ, living in AZ, and that a majority of the work would be performed remotely from AZ.

As I understand it (second hand from these companies) they open themselves up to liability under California labor law if it’s later determined that contracting/consulting work was “misclassified” and “should have been employment.”

I don’t personally know the reason for this, or what the liability is, but it seems like some companies are worried about having consultants/contractors later reclassified as employees. Me being in AZ has been the turning point for closing contracts though.

The liability is that it’s tax fraud. https://www.businessnewsdaily.com/770-contract-vs-employees-...

The 1099-NEC form you receive instead of a W-2 for contractor income even has instructions for how to report your employer to the IRS if you think you've been misclassified as a contractor instead of an employee. I'm sure the IRS carefully investigates all such reports to secure every single penny Uncle Sam is owed in back taxes and penalties.

This kind of law exists because companies coerce people into becoming "freelancers", so the company doesn't have to pay benefits and can fire them at will, but then ask the "freelancer" to come to the office everyday, clock in and out in time, wear a badge, work 40h week, etc.

So lawmakers crack down on that, but law is a blunt instrument, and other valid situations can get more complicated.

But believe me, those laws are created 100% because companies abuse the concept of contractor.

I believe you.

I don’t have a stake in it. I’m not in CA and it doesn’t appear to impact me doing business with CA companies.

I imagine it’s a bummer for anyone trying to make their own way on their own terms in that state though. It might just be an unintended consequence, or maybe it doesn’t impact CA sole-proprietorships at all if they know the magic words to say or the right contracts to provide. Or perhaps it’s not as big of a deal as it sounded when they told me.

Just sharing my experience and saying I’m glad I live in AZ based on my limited knowledge.

> It's also unclear to me why somebody would do that,

Because if you "contract" someone and they are later found to not qualify as that you can be forced to retroactively treat them as employees (e.g. pay their health/social insurance, fix your tax reporting about them, ...), it might be counted as tax evasion, ... Details about what exactly the rules are that need to be met vary by jurisdiction obviously.

I meant: Why would someone run a contacting company for one customer? That sounds precarious and silly to me. Having a diversity of customers always made sense to me.

From what I've seen: Acquiring new customers can be hard, and if someone is willing to pay for you full-time it's the easy path to just do that and kind of forget about adding on other projects (and the effort of balancing them etc)

That gives me the willies, personally. Given that contractors have no employee protections (such as they are) it’s even more troubling.

I started contracting because I saw it as a way to get some security. With a job I was effectively a business with a single Customer. Losing that relationship meant losing all my income (and health insurance). One fickle manager or business downturn and I might be in a world of trouble.

Having multiple Customers meant that I could screw up, survive a bad manager, lose a Customer’s downturn, etc, and not be scrambling.

How was this proof to be supplied? It sounds as if this is just a thinly veiled attempt to get your client list. That's confidential information and would have been a hard no from me.

We provided a form K-1 showing substantial revenue beyond our billings to them. I didn’t like disclosing our revenue but we didn’t disclose any client details.

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