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Comment by hughjd | Hacker News Reader

Is this Upwork trying to avoid falling afoul of tax legislation similar to IR35 in the UK? As far as I understand, it tries to crack down on people like OP who (in the view of the tax authorities) are essentially employees at a company but do the work freelance so both they and the company benefit from various tax perks.

https://www.contractorcalculator.co.uk/what_is_ir35.aspx

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Yes very likely they're trying to mitigate against what is sometimes known as "co-employment risk".

Basically different types of companies have different legal requirements in terms of taxation, retirals and benefits. In the legal system of two countries I am familiar with larger companies have a higher burden than smaller firms.

In this scenario, a large company could theoretically reduce their costs by contracting a number of their workers as employees of smaller firms and masquerading as if they didn't have lots of employees. However it's still the management of the larger company which is supervising the work and therefore effectively committing fraud.

In situations I have worked with, there are a bunch of restrictions in what can be contracted out like this and what can't... Also how long can you have the contracted person working for the company - because if the work is person dependent, you should have hired the person directly.

Yes, my feeling it was something along these lines. From what I read on Twitter the hiring company would only use him through UpWork, which is fine for one offs and so on, but it sounds like they used him a lot, to the point where there was a question mark over the legal situation - that's why there are umbrella companies.

I would possibly blame the hiring company more than UpWork, but there's no doubt UpWork's communication could have been better. Most of my freelancing has been done through umbrella companies in the past, but increasingly it seems a better option to use Ltd. company in the UK due to employer those massive NI contribs.

Ltd companies are expected to also pay NI contributions if IR35-caught, though?

This is likely much closer to the correct answer. I do grant writing for nonprofit and public agencies and some businesses (see http://www.seliger.com/blog if you're curious), and we sometimes need to sign forms that say we're independent contractors, not employees.

There are complicated rules for determining who counts as an employee and who doesn't. Microsoft famously lost (or "settled?") a lawsuit around this issue: https://corporate.findlaw.com/human-resources/employee-or-in.... I don't know the details of the case and found this piece via DuckDuckGo, so others may know more about it than I do.

In short, some kind of tax / regulatory issues may lie at the bottom of this case, and the comment above should be near the top of the HN heap.

Edit to add that, of course, this is no excuse for the company not explaining what's going on.

Remember that in the US, as an employee/contractor you can sign whatever you want saying you are/are not a contractor and it’s completely worthless.

The government decides how you’re classified, not you.

I'm not sure what "perks" there are from being classified as a 1099 contractor from the contractor's POV. The government is generally interested in people being W2 because then the company is obligated to withhold taxes, which makes the government much more likely to be paid as opposed to relying on individuals to pay their "self-employment tax", i.e., the portion of payroll tax that the company would bear if the individual were classified as W2.

Since this simplifies the individual's tax paperwork and transfers some of that burden to the employer, this can frequently be framed as some kind of "fighting for the little guy" thing, but it's really just about the government getting paid more reliably.

There’s more tax flexibility as a 1099 freelancer and if you have previous work expenses for the year it can offset any income. For example, if you bought a $2k laptop to work with $2k of 1099 income can be offset by the purchase so you pay no state, federal, or payroll taxes. If you are w2 then you can only deduct the amount that exceeds 2% of annual gross income.

Typically w2 is better for the employee. But if you are planning to do a lot of work then getting a 1099 under your LLC or S or C Corp can work out better for a sole owner.

I suspect the US does it differently, since with IR35 you can determine where you fall by reading the particulars of the contract.

Having only one client for over a year or so, in IR35, isn’t necessarily an immediate indicator that you’re an employee masquerading as a contractor.

Upwork’s algorithm seems to use that as the primary metric.

that was my impression too.

except that the issue in some countries is not cracking down on fake freelancers, but on companies who avoid taxes by treating their employees as contractors, to the point that these contractors can sue their employers to receive full employment.

upwork for sure didn't communicate very well in this case, so there is still cause for compleint, but only about how they handled this case, and not why.

greetings, eMBee.

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