Synergistech heals companies' 1099-based Independent Contractor headaches

Synergistech has a unique solution to companies' worries when it comes to independent-contractor compliance with applicable tax laws. This solution both dramatically reduces our clients' risks of non-compliance and substantially benefits independent contractors.

In our discussion of relevant independent contractor tax law, we acknowledge that the risks of setting up a non-compliant 1099-based independent contractor relationship are real. Companies seeking to save payrolling expenses (averaging 20 percent of the bill rate) by engaging a 1099-based worker need to balance those risks with the potential for long and far-reaching audits by IRS and/or their state's employment department and 50 percent penalties per audited contractor. And contractors need to be sure that their business-related deductions are legitimate.

Synergistech understands contractor tax law, and has collaborated with IRS and California's FTB and EDD to create a solution that gives companies true confidence they're engaging a legitimate independent contractor whom they can confidently pay on a 1099 basis. Essentially, we bypass the effects of Section 1706 and create a two-party relationship between the company and the contractor.

With Synergistech's solution — even though we perform all the beneficial functions of a third party — there is none of the contractor-reclassification risk associated with every other three-party relationship. Both client and contractor retain the benefit of the doubt regarding the contractor's tax status, and derive all the benefits, including:

• 20+ percent savings on contractors' bill rates
• No expenses for employment taxes, unemployment insurance, company benefits, or equipment
• No employee-related state and federal tax filings
• Access to higher-caliber talent
• Fully deductible business expenses, and often slightly higher bill rates, for the contractor

All the client company has to do to avoid any contractor tax law-related liability is to treat the contractor as much as possible in a manner consistent with the 20 Questions. Given the Section 530-endorsed benefit of the doubt, this is not difficult to accomplish.

Synergistech also understands that some situations may require contractors to work in a manner inconsistent with the 20 Questions. In these contexts, Synergistech will advise that it's safer to hire a payrolled worker — before companies find out themselves the hard way — and introduce a cost-effective solution that quickly and consistently meets all parties' needs while minimizing the risks.

How do we preserve true Independent Contractor relationships?

Synergistech creates Section 1706-compliant two-party relationships between our client company and the contractor we introduce. Essentially, we trust the contractor to rebate to us an agreed-upon amount of their earnings from our mutual client.

It's simple, legal, and mutually beneficial. IRS, FTB, and EDD agree it's both legally compliant and favorable to all parties involved.

It's also unique. We've never heard of another agency that had the courage to disclose its markup, much less rely on the candidate for compensation. Nor has PACE, which certifies Synergistech as the only fully transparent 'marketing broker' on the planet as well as one of the few agencies that passes their Acid Test for contract workers.

And it has worked well for over a decade, not least because it builds trust among all parties and appeals to their sense of fairness. So not only does Synergistech protect our client companies' financial and legal interests as well as our independent contractors' tax-advantaged status, but we've benefited dramatically as well — both financially and in terms of goodwill. We won't pretend we've never been stood up, but it happens so rarely that we don't fret.

Here is exactly what happens:

1. Synergistech confers with the top candidates for a given project to determine an appropriate rate of pay for their services, based on the project's requirements. If these candidates have questions about the project's scope, length, or any other detail, Synergistech relays those queries to the company and provides its candidates with answers before proceeding.
2. Synergistech negotiates an hourly rate for each of the top contractors directly with the company.
3. The company chooses a candidate.
4. The company contracts directly with the chosen candidate and that candidate signs the company's NDA if appropriate. The company pays him or her the rate Synergistech has negotiated in step 2.
5. Synergistech signs its Referral Fee Agreement with the successful candidate, specifying the rate at which he or she should invoice the client company as well as the rate Synergistech expects to receive from the contractor once those invoices are paid. (Note that Synergistech has no contract with the company, so retains no control or leverage in that regard.)
6. When the contractor gets paid, he or she keeps the amount agreed to in step 1 and cuts Synergistech a check for the difference.
7. The relationship between contractor and client company extends as long as mutually convenient, without further involvement from Synergistech.
8. The contractor receives the client company's Form 1099 early in the following year and deducts the amount paid to Synergistech as a legal and marketing expense on line 17 of their Schedule C. (Thus, even though the client's 1099 to the contractor shows a larger number than they retained, the contractor only has to pay taxes on the amount he or she kept after paying us.)

Synergistech welcomes your questions about our unique support for 1099-based independent contractors. If you're in a position to hire an independent contractor, and would like Synergistech to keep you safe from the contractor-reclassification auditor, we're happy to oblige.

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