figure out ~user's relationship to Gratipay

[chadwhitacre]

@rohitpaulk is on the Gratipay team. He contributes work and was receiving payments under our old team/members system. What is his relationship to Gratipay, LLC?

"Global HR Hot Topic—July 2011: Overseas Independent Contractor or de Facto Employee?: Cracking the Classification Conundrum"

[chadwhitacre]

For example, in India an independent contractor agreement should (accurately) say the contractor has a "permanent tax account number" and withholds and pays his own taxes.

[chadwhitacre]

This is prerequisite to bringing back payroll (gratipay/gratipay.com#3433).

[rohitpaulk]

/me checks how Elance/Upwork handled this...

[chadwhitacre]

The U.S. situation:

https://www.legalzoom.com/articles/what-you-need-to-know-about-hiring-independent-contractors
http://www.dol.gov/whd/regs/compliance/whdfs13.pdf
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee

[rohitpaulk]

Nope, Elance hasn't asked me for my PAN(permanent tax account) number. I have an option to enter it if I want it to appear on invoices, but that's it. PayPal did collect my PAN though.

@whit537 - You did say that we're similar to Upwork now, so if they didn't require this - I'm guessing there's a way around this without terming me as an employee?

[chadwhitacre]

The Department of Labor:

While the factors considered can vary, and while no one set of factors is exclusive, the following factors are generally considered when determining whether an employment relationship exists under the FLSA (i.e., whether a worker is an employee, as opposed to an independent contractor):

1. The extent to which the work performed is an integral part of the employer’s business.
2. Whether the worker’s managerial skills affect his or her opportunity for profit and loss.
3. The relative investments in facilities and equipment by the worker and the employer.
4. The worker’s skill and initiative.
5. The permanency of the worker’s relationship with the employer.
6. The nature and degree of control by the employer.

There are certain factors which are immaterial in determining the existence of an employment relationship. For example, the fact that the worker has signed an agreement stating that he or she is an independent contractor is not controlling because the reality of the working relationship – and not the label given to the relationship in an agreement – is determinative. Likewise, the fact that the worker has incorporated a business and/or is licensed by a State/local government agency has little bearing on determining the existence of an employment relationship. Additionally, the Supreme Court has held that employee status is not determined by the time or mode of pay.

http://www.dol.gov/whd/regs/compliance/whdfs13.pdf

[chadwhitacre]

The IRS:

Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:

• Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
• Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
• Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee

[rohitpaulk]

For a "reality check" in assessing whether an overseas services provider might be legitimately engaged as an independent contractor, just ask: If structuring this position as an independent contractor is such a great idea, then why not go ahead and engage all this person's US counterparts as independent contractors, too? Beware if your answer is: That would never fly—the US IRS and other stateside authorities would see right through this and deem this job to be employment. If that is the case, that same reasoning very likely applies abroad.

[chadwhitacre]

You did say that we're similar to Upwork now, so if they didn't require this - I'm guessing there's a way around this without terming me as an employee?

What was your relationship like with the companies you worked with on Elance/Upwork? Was it more similar or different than your relationship with Gratipay?

[rohitpaulk]

A usual freelancer-client relationship, @whit537. If I were to compare, Gratipay would be on the safer side of terming me as an independent contractor. I've done freelance jobs that required 40 hrs/week, and had much more control over how I work.

Most every country would uphold independent contractor status if a contractor can truthfully answer "yes" to six questions:

1. Do you have authoritative control to perform your tasks the way you want to—free from instruction on process, free from discipline, free from work rules, and free from your principal's supervision and control? (Abroad this is called the "subordination" test.)
2. Are you free to set your own schedule and work hours?
3. Do you provide your own office and supplies, pay your own business expenses and hire your own assistants?
4. Do you get paid only for work you actually do, such as hourly pay or task pay, no paid vacations/holidays? (In the Dominican Republic, for example, a contractor should never receive a salary.)
5. Do you take business risks and bear the ultimate risk of profit or loss? (The "business risk" factor is vital in Puerto Rico, where it is called the "economic reality" test, as well as in parts of China, per an August 2009 Beijing declaration on contractor classification.)
6. Can you, and do you, have other paying clients, and do you market your services to the public? (Exclusive, full-time independent contractors pose a special risk; Peru, for example, applies a rebuttable presumption that a full-time contractor is a de facto employee.)

Our answer to all of these questions seems like a safe yes to me.

[rohitpaulk]

7 . Are you free from non-compete, non-solicitation and other post-termination restrictions?
8 . Are you free to determine the order and sequence of your tasks?
9 . Do you bear the possibility of casualty loss (property/personal injury) and do you buy insurance?
10 . Is your pay free from employee-benefit/executivecompensation elements like health/life/disability insurance, bonuses and equity awards?
11 . Do you make tax/social security payments and withholdings like a business? (This is a vital issue in India.)
12 . Is your relationship explicitly temporary and short-term? (In Sweden, a relationship of more than six to nine months risks challenge; in the Dominican Republic, serially renewed independent contracts risk challenge.)
13 . Do your business cards and letterhead clarify your independence from the principal and do you use a title unrelated to the company?
14 . Are you kept off of the principal's organization charts and internal structure documents?
15 . Do you refrain from attending the principal's training sessions as a student?

12 and 14 would be a no, I guess?

I'm not sure about 11. I do pay and file taxes for my income through PayPal (Elance, Gratipay, Assembly).

[chadwhitacre]

In fact, contractor classification happens to be one of the very few points of employment law where we can make useful generalizations across jurisdictions.

[chadwhitacre]

(12) is definitely no. I, at least, want you to be around a long time. :)

(14) is a no, insofar as we have an org chart.

Our answer to all of these questions [1 through 6] seems like a safe yes to me.

Well ...

(1) Do you have authoritative control to perform your tasks the way you want to—free from instruction on process, free from discipline, free from work rules, and free from your principal's supervision and control? (Abroad this is called the "subordination" test.)

What about comments such as gratipay/gratipay.com#3399 (comment), and tickets like #136?

(4) Do you get paid only for work you actually do, such as hourly pay or task pay, no paid vacations/holidays? (In the Dominican Republic, for example, a contractor should never receive a salary.)

You certainly don't (well, didn't) get hourly pay or task pay. When we were actually paying you, we were paying you weekly regardless of your work.

[chadwhitacre]

There is a third alternative to the employee/contractor divide: owner.

[chadwhitacre]

(8) Are you free to determine the order and sequence of your tasks?

To an extent, but what about gratipay/gratipay.com#3520 (comment)?

[chadwhitacre]

Limited Liability Company (LLC) and Foreign Owners

[rohitpaulk]

@whit537 - What's our lawyer's opinion on this?

[chadwhitacre]

Good question.

[chadwhitacre]

@rohitpaulk We may need to catch up with our payments to our lawyer first before we can ask him to work on this.

[chadwhitacre]

@rohitpaulk If you're an owner of the LLC, then we need to give 35% of what we pay you to the U.S. government. That is onerous. Presumably you would then need to pay taxes in India on what you receive as well, and probably on the full pre-U.S.-tax amount.

[chadwhitacre]

Let's use this as the top-level ticket for the new Payroll milestone.

https://github.com/gratipay/inside.gratipay.com/milestones/Payroll
https://github.com/gratipay/gratipay.com/milestones/Payroll

[chadwhitacre]

@dougwilson and I had a long discussion about this last night, over at #211 (comment). See there for 🐰 chasing and starting to wrap our head around some of the issues here. Someone should summarize that over here. :)

[chadwhitacre]

Do we require a W9 (or equivalent) on file within Gratipay?

And the purpose of building a vault (gratipay/gratipay.com#3504) would be to store NINs, in order to facilitate the filing process for Teams—whatever their particulars.

[chadwhitacre]

So yeah, the quickest way back to payroll is to not build a vault, and to make each Team responsible for collecting and verifying the national identity of their members out-of-band. I'm reluctant to go that route even though it's more painful (because it's way more work), because I think that's a really broken product and user experience. Not that we've worried too much about that in the past ...

[chadwhitacre]

I've dialed this ticket back from #242 (comment) to reflect the re-focus on the relationship between ~users and Gratipay in particular.

[chadwhitacre]

Aaaand I think we're converging on "contractor" for everyone except the CEO called for at #72 (comment).

[chadwhitacre]

Until such time as the Estonian equivalent of the SS-8 (#242 (comment)) should determine that another relationship is more appropriate.

[mattbk]

Aaaand I think we're converging on "contractor" for everyone except the CEO called for at #72 (comment).

Agree on that.

[kawa-kokosowa]

Why not categorize the distribution of donations to team members as "donations?" Since... that's really what they are, I mean, who's actually going to be hiring people under 1099 to collect what'll probably be extra spending money? How does Bountysource handle this? It's not like every person is contracted out when they solve a bug, nor did they ever verify all of my members. But money has been flowing through!

I'd really like to see invite-only completely even donation sharing.

Honestly all I care about is, as a nonprofit, I want a way to just automagically evenly distribute our pool of donations, split evenly among our needy members (we train/intern trans women in software engineering). We also don't want to overly formalize the process of being on this team which receives donations.

Don't call it payroll just call it "donation sharing."

I mean, you can collect a ton of donations on Patreon and they just... seem not to bother you about a 1099. :p I haven't seen them ask me for it one and I've collected hundreds of dollars. These are donations to a direct person. This is not 1099 or self employed, I don't believe. So why can't we just say that the system is just a way to break up people's money into equal donations to a group of people?

I just really don't see this being a real payroll system for people. If you have a system that revolves around what's practically a donation, then people are going to use it like a donation system? And like, for most organizations, it's not one outlet like Gratipay that's making anything like "payroll," it's many of those types of sites combined with other online and passive sources of revenue. Personally, for HSO we're on Patreon, Paypal, Bountysource, Gratipay, something I'm forgetting probably.

You'll still need to do a W-9 for people making over 600.

[chadwhitacre]

Reading ...

What happens, legally speaking, when a group of people get together and decide to perform some task without filing any legal paperwork or establishing any formal legal structure? Whether they know it or not, they have formed an unincorporated association.

http://www.nolo.com/legal-encyclopedia/what-an-unincorporated-nonprofit-association.html

[chadwhitacre]

"Donations" is just what non-profits call "revenue." Whether it's revenue sharing or donation sharing, the question of legal status remains: what's the relationship between the individual receiving the share, and the entity (whether for-profit or non-profit, whether incorporated or unincorporated) to whom the money was given to share in the first place?

We could say that there is no entity, that the money is going directly from the givers to the individuals. (I believe this is what Liberapay says). The problem is that this discourages corporate givers, because companies want an invoice, and they don't want 50 invoices for $2 each from all the individuals who are "behind the curtain"—they want one invoice for $100 from Foo, Inc.

Insofar as we have an entity, then, we have to figure out the relationship. Maybe some of what you're pointing at, @lillian-lemmer, is that at small amounts it's not a big deal, and that's true (that last link I posted suggests $5,000/yr before it starts to matter). Patreon takes a hands-off approach, but I'm sure in their fine-print they say, "taxes are your job"—we say the same! There's two things going on here:

1. What's our story for Gratipay Teams? It'd be great if we could give some advice, like "below $5,000 per year, don't sweat it. Above that, here are your options: a) b) c)."
2. The main question on this ticket is, what is the Gratipay Team itself going to do?

We're already above a $5,000 per year threshold (we're currently grossing about $13,000 per year). When we ran with payroll under Gittipay 1.0 we definitely had multiple folks above $600 per year. How are we modeling that? Seems like we're arriving at 1099s for most folks, maybe employee for one or two.

[chadwhitacre]

this discourages corporate givers

And, for better or for worse, corporate/institutional givers are where the money is—that's where it starts to become possible to move beyond "extra spending money."

[kawa-kokosowa]

Your biggest goal is to facilitate corporate/institutional sponsors to official/"verified" teams/organizations?

Thank you for explaining all of this. :) You make it very easy to understand.

[mattbk]

Bountysource: https://github.com/bountysource/core/wiki/Frequently-Asked-Questions#do-i-have-to-pay-taxes-on-bounties-i-collect

Patreon: https://www.patreon.com/taxes

[chadwhitacre]

Your biggest goal is to facilitate corporate/institutional sponsors to official/"verified" teams/organizations?

My biggest goal is for Gratipay to not die for as long as possible, gradually building a community and a product until we can say we've achieved our mission—and have fun in the process. :-)

But yeah, companies and foundations are holding the wealth in the world, so playing nice with them seems advised. :)

[chadwhitacre]

!m @mattbk

What are the implications for us here? Looks like they're both doing the same thing, which means we probably should, too. What are the laws they're operating under? How does an additional entity in the money flow change the situation?

[chadwhitacre]

But yeah, companies and foundations are holding the wealth in the world, so playing nice with them seems advised. :)

On the other hand, big things come from little things, so we also need to play nice with small projects and project just getting started. We need a smooth process from "Hey! I've got a neat idea let's see if it works!" all the way up to "We're Wikipedia, pleased to meet you."

[chadwhitacre]

To: CPA

A prior question for you: are these workers properly classified as contractors? I've run through a couple checklists and results are somewhat inconclusive. Our current plan is to move forward with contractor status, and file an SS-8 once we have more experience under our belts.

What would you need to know to advise here? Is this worth a phone call?

Prior to the tax treaty questions at gratipay/gratipay.com#3433 (comment), that is.

[mattbk]

File an SS-8 if it turns out a person is an employee rather than a contracter? It seems it should only be filled out under certain circumstances:

Explain your reason(s) for filing this form (for example, you received a bill from the IRS, you believe you erroneously received a Form 1099 or
Form W-2, you are unable to get workers' compensation benefits, or you were audited or are being audited by the IRS)

[chadwhitacre]

File an SS-8 if it turns out a person is an employee rather than a contracter?

I was thinking we'd file precisely in order to answer that very question. My understanding is that either party can request a determination:

Firms and workers file this form to request a determination of the status of a worker for purposes of federal employment taxes and income tax withholding.

Filing a Form SS-8 requesting a “worker status” determination means you or the firm is asking the Service to establish if the services you provide to the firm are those of an employee or an independent contractor.

https://www.irs.gov/uac/About-Form-SS8

[chadwhitacre]

In other words, we proceed by our best lights (yinz are contractors), and then ask the IRS to tell us whether we got it right. If they agree then we've got a high degree of confidence, if not then we adjust.

[chadwhitacre]

Alright, just fielded a call from Peter (our CPA). He's quite comfortable with a contractor classification, because Gratipay is not dictating how you spend your time and we're not providing a work environment (i.e., desk and a computer). The fact that compensation is take-what-you-want is a further point in favor of contractor classification. He advised against filing an SS-8, since the matter is clear enough already.

[chadwhitacre]

Gosh. Are we done with this ticket, then? 😳

Reminds me of #119 (comment):

And, then, who are your partners? Who are the players involved? Which are the different relevant factors you have to respect?

Bringing in a CPA has definitely proven to be a good move. :-)