Employer converting employees to self-employed and huge tax hit

[Sue J]

Quote:

Originally Posted by athena53 This is called a PEO, or Professional Employer Organization. I had a few as clients when I was a consulting actuary. You're still an employee, but not of the company where you go to work every day.

Thank you! I didn't know there was a name for this.

[soupcxan]

Quote:

Originally Posted by Texas Proud OK... but that means she has an ownership interest in the partnership.... and should get a share of the profits.... What kind of organization is this Attorneys and accountants do this... but the big ones still have employees... It is USUALLY a good thing for someone to become a partner and one of these places.... I would just want to make sure it is a LLP so your assets cannot be attached if the company loses a lawsuit....

You don't get a share of the profits unless you put up six-figures of cash to buy in. And that is it's own can of worms.

That's why I'm asking...is it even worth working here anymore?

[target2019]

Quote:

Originally Posted by soupcxan You don't get a share of the profits unless you put up six-figures of cash to buy in. And that is it's own can of worms. That's why I'm asking...is it even worth working here anymore?

It sounds like a dodge of some kind. Choices are always: stay, or leave.

Does this situation bother her as much as you? If she is fine with continuing, even for now, she can look elsewhere and pull a check.

[marko]

If your big concern and deciding factor is the tax hit, rather than talk to a lawyer you might talk to your tax accountant.

Figure it out exactly, see if the boss has plans to make up the difference and then make the stay/go decision.

It's not complicated. If a new job is easy to find get one, if jobs are hard to find, stay.

[someguy]

Agree with others -- it seems like the real question here isn't of a pay cut equivalent to 5% or a a little more, it's everything else around the change. I'd be bummed about a 5% cut at $200K/year, but the potential personal liability, partnership cash buy in (opportunity costs) and those types of things would be the real decision makers/deal breakers. It sounds like professional legal and tax advice is called for. Obviously you'll need the partnership agreement for this; if there isn't one, that is a huge red flag.

[Big_Hitter]

Quote:

Originally Posted by Texas Proud OK... but that means she has an ownership interest in the partnership.... and should get a share of the profits.... What kind of organization is this Attorneys and accountants do this... but the big ones still have employees... It is USUALLY a good thing for someone to become a partner and one of these places.... I would just want to make sure it is a LLP so your assets cannot be attached if the company loses a lawsuit....

"fixed income" partners don't get a share, just a paycheck

[someguy]

Quote:

Originally Posted by Big_Hitter "fixed income" partners don't get a share, just a paycheck

I thought partnerships were designed to allow sharing of the profits. If profit isn't being shared, what is the reasoning for doing a partnership? Do fixed income partners get a piece of the proceeds if the org is sold?

[Big_Hitter]

Quote:

Originally Posted by someguy I thought partnerships were designed to allow sharing of the profits. If profit isn't being shared, what is the reasoning for doing a partnership? Do fixed income partners get a piece of the proceeds if the org is sold?

not sure, I haven't read a partnership agreement in a while

[Texas Proud]

Quote:

Originally Posted by Big_Hitter "fixed income" partners don't get a share, just a paycheck

Quote:

Originally Posted by someguy I thought partnerships were designed to allow sharing of the profits. If profit isn't being shared, what is the reasoning for doing a partnership? Do fixed income partners get a piece of the proceeds if the org is sold?

That is my question.... I never did see any of the partnership agreements but did do a few tax returns of small companies... I never saw a 'fixed income' partner....


Heck, I did not know there could be a fixed income partner..... but, thinking about it, I guess they could give such a small % of the partnership that any share of profits over and above their fixed income will not come to a hill of beans....

Be aware that if it stands (see below on at least one law), you lose out on a good number of legal protections.... so if it were me and I was not getting a good % of the partnership and it was just a way to screw me over, I would be looking to move to another firm ASAP... it is not like the firm is going BK or something.... it is just a money grab by the named partners....


Here is an interesting article talking about making sure you do not treat a partner like an employee.... so if she owns .00001% she is a partner....


Treating partners as employees: Risks to consider



But, it might not be controlling on all laws.... just found this.... probably more out there....


EEOC informal discussion letters lay out factors for analyzing whether a partner is really an employee | Employment Law Daily

[Big_Hitter]

^^ check this out What Being a Nonequity Partner Means: From Lifestyle to Leadership Choices | Law Practice Division

No capital contribution or buy-in.
Designation as a partner in all firm directories and materials.
Voting on all matters except compensation of equity partners; admission of equity partners; merger or dissolution of the firm; and in some firms, election of the managing partner or executive committee.
Serving on all committees except the executive one. Some firms, however, do provide one non-voting seat on the executive committee for a nonequity partner, with only the firm’s nonequity partners voting for that seat.
A share of the profits, based on the lawyer’s performance. Most firms designate a percentage of the profits for distribution among the nonequity partners.

[Texas Proud]

^^^^^


But if they are making everybody a 'partner' then it is not along the lines of your article...

Yes, in an law or accounting practice it is usually 'up or out' mentality.... I get that... but if they change everybody, including the new people, it seems like a money grab....


So.... to the OP... is everybody in the firm being 'converted'? Or are there going to be employees still What about the 'help'.... you know, the assistants, HR, accounting, library etc. etc...... if the whole firm is not becoming partner then it is not quite the same as I read in your first post.... they are just doing it to your DW and maybe a few others....

[soupcxan]

I'd rather not go into all the details because it is a small world after all. But I think it is incredibly discouraging to be given a pay cut for no fault of your own.

[MRG]

soupxcan,
I think that stinks. Has she asked what's in this for me?

These changes benefit someone so maybe a few well placed questions may nicely make the point of I'm getting unhappy about this.

Seriously stuff like this, not for near the income, made me leave. In the end one of the best decisions I ever made.

[rodi]

For me, this might be the straw that broke the worker bee's back. Effective pay cut, benefit cut, basically a 'heck with you' message from the equity partners. I think if look elsewhere even if it meant a small pay cut.

[Big_Hitter]

yep, I'd be giving them 8 "nas" 3 "heys" good bye

[Sunset]

Quote:

Originally Posted by soupcxan I'd rather not go into all the details because it is a small world after all. But I think it is incredibly discouraging to be given a pay cut for no fault of your own.

Sure, but not nearly as discouraging as being laid off for the same reason.
So she takes a pay cut, she can still look for a replacement job and it could look impressive as a "partner" of the old employer.

[pjm-7]

Quote:

Originally Posted by HadEnuff Did you work for a government agency? I would love to hear your take on this issue.

I worked for a government agency (not federal). An independent contractor is free of control and direction by contract and by fact. Just because the employer makes someone sign a contract that in and of itself does not make the person independent. There must be a "material" fact. Also, the person must hold him or herself out to the public to be independent. Does this independent contractor have their own business cards, website and maintain their own professional licensing? Does the contractor set the rate of pay?

There are plenty more tests that need to be met, this is just a summation.

[Lakewood90712]

So how many years did she plan to stay before this " Partnership " change was imposed ?

[Walt34]

Quote:

Originally Posted by soupcxan That's why I'm asking...is it even worth working here anymore?

Well, it depends on what she thinks of course, but if it was me I'd sure be considering other employment opportunities. This is clearly an employer that doesn't give a rat's rear end for employees so that's how I'd treat the employer. That itself is depressing enough over a long period of time to make me want to go elsewhere even if it meant a pay cut.

I learned a long time ago that the people one works with can make a job almost fun and entertaining or make you depressed and morose.

[Rustward]

About two years ago in this thread http://www.early-retirement.org/foru...xes-75914.html

You posted this:

Quote:

Originally Posted by soupcxan Boo hoo for us, right? Wages 347k + interest/dividends/CG 25k = AGI 372k - itemized deductions: 24k - exemptions: 4k = 344k taxable income Tax: 86k + AMT 1k + additional medicare tax 1k + net investment tax 1k Total federal tax: 89k We already max our 401ks, and our deductions are being phased out so more donations doesn't help. Having a kid this year also isn't likely to help much as that exemption is phased out for us too.

If these numbers are still close, perhaps you could afford a few hundred dollars to talk with a tax specialist, CPA, or other professional who could tell you all of your options.

Yes, boo hoo 4 u.
I am crying for you.
You have been dealt such a tragic hardship.
No human should ever have to endure something as torturous as this.

Who can afford to live on so little? And now you might have to pay a little more in taxes? It's just not right!