I own a kung fu school and pay my two teachers 25% of profit each monthly and I take 50% monthly for past 10 years. I have never been sick, but three weeks I was sick, and the teachers worked extra hours while I was out sick. They are independent contractors for sure, trust me on that. To my surprise when I came back from being sick these two yokels paid themselves 35% each totaling 70% of the profits and only left me with 30%. They claimed they worked at least 10% more hours each than they normally worked. This is true but surely they will owe me the 20% money back if I don't fire them. True or False?
Thank you for helping this old dude.
Moving this question from Tax to Employment so you get good answers. I do see tax issues here but you are not asking about them! I hope you have a good CPA who is treating this issue properly.
This answer does not establish an attorney client relationship and is just my opinion based upon the limited facts presented.
The answer will be found in the written independent contractor agreement that you have with the yokels. Get it to a lawyer for review, but only after you terminate the yokels independent contractor arrangement pursuant to the terms of the written independent contractor agreement. I also would not be as nearly as confident as you seem that the yokels are independent contractors. You just might be opening a can of worms here. Hope this sheds some light.
Mr. Schofield has given you excellent legal advice--as well as some practical advice that recognizes dark clouds forming on the horizon of your plans to take back the money your "independent contractor" partners feel they were entitled to for "helping this old dude" when you were sick--for three weeks.
There are several ridged tests employed by the IRS when asking employers to justify categorizing any
employees as "independent contractors." So, before you start a fight you might lose, perhaps you should ask another experienced employment lawyer to explain what I just said.
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