Hi.
I have the following problem. I have a small picture framing shop in glendale, california and about this time last year decided to take on some help. After many interviews, I decided on what I thought would be the most promising and motivated person. Being a new business, I wasn't really set up at the time to do the 'proper paperwork' - but figured that as long as that was done by the end of the tax year, then it would be okay...
at any rate - sit tight - there are a few parts to this problem:
PART 1: Definition of Employment
I took this person on casually - telling them I could give them no more than 10-15 hours a week and that they should give me invoices to pay them. They were resistant to the idea of invoicing - but I try to be easygoing... so I just paid what was owed when I could. One of the reasons I took this person on is that they stated they were flexible with pay (meaning - when they get paid) and I have a tiny business - so that was definitely a plus for me. ANYWAY - cut to the chase. I'd been giving them chunks of $$ as it came in paid out against what they supplied to me as their hours (just an excel spreadsheet). I was forever behind in paying them - but not horribly so. They seemed to tolerate it fine and it was workable.
PART 2: Then the Crisis Came
About six months after this 15 hour a week gig (at this point I'd paid around $2000 on maybe $3500 owing) things were looking pretty bleak. We were making nearly zero sales and I had to start relying heavily on my family to help me make rent payments etc... I told the erstwhle employee/contractor (unsure how to categorize - though they set their own hours and were free to pursue employment on their own, etc) that I couldn't afford to keep them on... and that we'd have to pick things up later somehow and that I was sorry...
Their response to this was that they would be happy to 'volunteer' for the time being until I got back on my feet. It was definitely a very nice offer - but I told them that I couldn't accept that since I didn't think it was fair to them. So I told them this: that if they wanted to do that - well, that I would compensate them when and if I got enough money 'an equivalent amount' - The point to saying this, for me, was that I would be able to fall back on the fact that they were simply offering to 'help out as a friend' at this point - IN CASE we were making zero money and then I wouldnt' be stuck. That was an attempt at creating a loophole for myself. But it was never my intent NOT to pay this person some sort of compensation for time spent. I want first and foremost to be fair - and this person was fairly devoted to the 'job'.
PART 3: The Falling Out
After a year of knowing this person and having them do work for me under such an fuzzy definition of compensation, and having racked up another $3K in obligatory debt to this person under my own definition (see previous paragraph) the financial and other stresses came to a head and they quit on me (understandable). I am deeply thankful for their help - and want to get them fully paid at what was (I think) a fairly generous hourly compensation rate. But there are problems - since I don't fully understand the tax system and law...
MY QUESTIONS
Can I (retroactively) file a 1099 form for them and get this all legit somehow - so that it's properly filed with the IRS etc... my taxes haven't been filed yet and I"m a sole proprietor. I thought it would be smart to do that to cover myself in case the situation with them turned nasty somehow... as it stands I owe them money but I'm wondering if I'm screwing myself by giving them the cash they insist on...(?)
Sorry to be so verbose - it's about the simplest way I can think of putting it.
I have the following problem. I have a small picture framing shop in glendale, california and about this time last year decided to take on some help. After many interviews, I decided on what I thought would be the most promising and motivated person. Being a new business, I wasn't really set up at the time to do the 'proper paperwork' - but figured that as long as that was done by the end of the tax year, then it would be okay...
at any rate - sit tight - there are a few parts to this problem:
PART 1: Definition of Employment
I took this person on casually - telling them I could give them no more than 10-15 hours a week and that they should give me invoices to pay them. They were resistant to the idea of invoicing - but I try to be easygoing... so I just paid what was owed when I could. One of the reasons I took this person on is that they stated they were flexible with pay (meaning - when they get paid) and I have a tiny business - so that was definitely a plus for me. ANYWAY - cut to the chase. I'd been giving them chunks of $$ as it came in paid out against what they supplied to me as their hours (just an excel spreadsheet). I was forever behind in paying them - but not horribly so. They seemed to tolerate it fine and it was workable.
PART 2: Then the Crisis Came
About six months after this 15 hour a week gig (at this point I'd paid around $2000 on maybe $3500 owing) things were looking pretty bleak. We were making nearly zero sales and I had to start relying heavily on my family to help me make rent payments etc... I told the erstwhle employee/contractor (unsure how to categorize - though they set their own hours and were free to pursue employment on their own, etc) that I couldn't afford to keep them on... and that we'd have to pick things up later somehow and that I was sorry...
Their response to this was that they would be happy to 'volunteer' for the time being until I got back on my feet. It was definitely a very nice offer - but I told them that I couldn't accept that since I didn't think it was fair to them. So I told them this: that if they wanted to do that - well, that I would compensate them when and if I got enough money 'an equivalent amount' - The point to saying this, for me, was that I would be able to fall back on the fact that they were simply offering to 'help out as a friend' at this point - IN CASE we were making zero money and then I wouldnt' be stuck. That was an attempt at creating a loophole for myself. But it was never my intent NOT to pay this person some sort of compensation for time spent. I want first and foremost to be fair - and this person was fairly devoted to the 'job'.
PART 3: The Falling Out
After a year of knowing this person and having them do work for me under such an fuzzy definition of compensation, and having racked up another $3K in obligatory debt to this person under my own definition (see previous paragraph) the financial and other stresses came to a head and they quit on me (understandable). I am deeply thankful for their help - and want to get them fully paid at what was (I think) a fairly generous hourly compensation rate. But there are problems - since I don't fully understand the tax system and law...
MY QUESTIONS
Can I (retroactively) file a 1099 form for them and get this all legit somehow - so that it's properly filed with the IRS etc... my taxes haven't been filed yet and I"m a sole proprietor. I thought it would be smart to do that to cover myself in case the situation with them turned nasty somehow... as it stands I owe them money but I'm wondering if I'm screwing myself by giving them the cash they insist on...(?)
Sorry to be so verbose - it's about the simplest way I can think of putting it.