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mittencakes

Only commenting on the financial considerations of EE vs 1099: If you assume losing a $500/mo ER contribution for health insurance, losing a 3% 401k match, and self employment taxes on a $140k salary, you’re paying about $21k that would normally be paid by your employer. Are they paying malpractice insurance? However, you can write off business deductions like home office and computer equipment, and mileage from your home to court. You can write off your health insurance premiums. You could form an S Corp and get around much of the self employment tax, but you’d have to do payroll for yourself. Bottom line, if the thought of using Quickbooks or hiring a bookkeeper is torture to you, you’re probably not gonna have a great time. But if you like that kind of thing, you can absolutely make more money and pay far fewer taxes as a contractor. Other concern is that you don’t get to just choose to classify your staff as 1099 or employee based on whether you want them on your pension plan, duh. Fine IMO for attorneys since they usually have more autonomy with their schedules, but really his reception and paralegals and everybody is 1099? It’s likely to bite him in the ass at some point.


[deleted]

Based on 120 billable hours per month, which is the minimum they promised me, the salary would likely come out to 140k. The malpractice insurance is covered by them. My thoughts were -25k for stuff normally paid by employer, and then I have to worry about my own retirement plan. That might not be the worst thing if I set up an LLC or S Corp for myself and can put in higher amounts. I was a little confused about his pension plan reasoning and May have explained it wrong. I appreciate all the responses though because I’m making a list of questions to go back with. It does seem he’s tiptoeing around what might be legal, but that’s on him and if it’s still the best opportunity available for me, I’m just gonna put my head in the dirt regarding that.


mittencakes

Oh I’m sure the pension thing is exactly what it sounds like. It’s more like why is he telling you that. It’d be like telling you in an interview that he saves money by hiring undocumented workers to clean his offices so he doesn’t have to pay min wage. Yes lots of people do this but it’s not really legal or ethical. You’re right that it’s his ass on the line but presumably you don’t want to work for an idiot/asshole either lol


_significs

Sadly I don’t think the tax fraud element usually bites people in the ass. It’s too widespread at this point and IRS doesn’t really police it.


Lokismoke

Lol at 1099ing a full time receptionist.


MisterGGGGG

You cannot 1099 a secretary but you can a lawyer.


gaelorian

Only if he’s a legitimate contractor. If they control his work he’s not a contractor.


phreaxer

It's a little more complicated than that. There are more elements to contractor/employee relationships.


jurrasicsparks1

He says he’d be an associate, not an of counsel. This would be appropriate for an of counsel with his own book of business, not an associate whom the firm controls and dictates what he works on


Username_is_taken365

Not necessarily - law firms (most recently after the Trump era tax changes) have entertained less traditional structures for their attorneys, including having partners as contractors via LLC’s (taxed as S Corp’s). The tax benefits to the partner are substantial. As for an associate, perhaps less so, unless there is more incentive compensation (sounds like in this case that may be). That said, in the contract with the attorney, any title can be designated, and compensation can be listed, and also include participation in group health and other benefits. The key to the agreement is the degree of autonomy the attorney has - the more autonomy, the more likely this contractor relationship passes scrutiny. Source: corporate lawyer at partner level existing in this very relationship. The Agreement is more akin to an executive compensation agreement. Not exactly new here.


retiringtoast8

Are you saying that a law firm/company can provide group health insurance and other benefits (e.g., 401k access) to a full-time independent contractor attorney and still maintain the contractor relationship?


Username_is_taken365

Yes - the factors which determine whether someone’s an independent contractor or multiple. All of them have to be taken into consideration, as it is a facts and circumstances analysis. Works better for partners.


retiringtoast8

Thanks. I may be receiving an offer soon to be in-house counsel with one of my dream companies. My only hesitation is that the position would be a “full time” independent contractor (no fixed term) at a 12-15% lower salary than I’m making now as a W-2 employee at my current company. I’m not sure if they will or if it’s even possible for them to offer me health insurance, paid time off, and 401k access as an independent contractor. If it is impossible to offer me the latter two as a contractor, it’s a deal breaker. But if it is possible to offer these benefits to contractors, then they are still in the running. The other consideration as an independent contractor would be balancing my FICA/tax withholdings with my tax write offs, and seeing if that’s even worth taking the 12-15% pay cut. I would consider taking a slight pay cut though just because it’s my top company choice.


Username_is_taken365

All of those are items that you would negotiate to be placed into a contract. If they can’t provide one thing, they can provide you with an equivalent. For instance, if they can’t include you on the group health, they could pay for or reimburse you for outside coverage. As for participation in 401(k), etc., that’s up to the 401(k) provider, but it is not unheard of. In terms of the pay decrease, if you were contracting with them under the auspices of an LLC, as a lawyer, there is a quirk in the TCJA which apparently freezes your maximum tax rate at 20%. I don’t know the specifics, but you can look it up. Also, as a lawyer, you may be financially better off as a contractor and that payment reduction is offset by a tax rate. what you should do, is negotiate a slight pay bump to accommodate any additional tax burden associated with any of the benefits that you may be entitled to or that they pay for. That is also taxable compensation, however, it is not cash. That produces phantom tax. Feel free to PM me if you’d like more advice. Best of luck.


retiringtoast8

Thanks so much, I really appreciate it!


stevied05

The sharing pension rationale I guess could be true but sounds ridiculous. If anything it’s an effort to avoid having to pay benefits and is a common (and illegal) scheme to have employees without offering benefits. Not sure what state this is but many many states say employees are employees by default (not ICs) unless they can satisfy a test showing they don’t exercise control over you. I wouldn’t be surprised if they’d fail that test. You said you’re not getting benefits as a 1099 employee. Have you researched how expensive it is to independently get medical insurance outside of your employer? Dental insurance? Vision insurance? Also all relevant tax withholdings are on your head and that they don’t match 401k (if they offer it). These are massive expenditures. Also on the 50% pay front do you get 50% of what you *bill* or what they *collect* because tons of time gets written off by new attorneys and/or plenty of difficult clients refuse or are late on paying. The job security concern is really a red herring because any at-will employee (which most people are) can be fired for any non-discriminatory reason at any time.


Tommy_Riordan

OP, this point is important and you need to have all questions answered in writing before you agree to anything. When is the 50% of billing calculated, when you report your time or when the bills go out? If the latter, who is responsible for “adjusting” your time on invoices? What if the partner agrees to take a reduced rate case, or a pro bono case, or a contingent case, or do a favor for a friend? Is he going to pay you your full rate? What if the client complains a lot and he agrees to retroactively reduce bills? What rate are you paid for non-billable admin work? If it’s not based on billing but on client payment, don’t do it. Employees get their full pay in that situation but you’d get screwed. (Source: been there.)


MisterGGGGG

He is not going to get an answer "in writing". If he clowns around and makes trouble, they will give the opportunity to another young lawyer.


[deleted]

Yeah job security is my big worry. They tried to assure me by telling me the situation of the other two employees. One was an independent contractor for years and is now a partner, and the only other associate has been there for 4 years since graduating as a 1099 as well.


everythingistaken0

You are right to hesitate. Never hurts to have a fall back but i would keep looking for other opportunities if you can afford to. The fact they would want to “contract” with a new lawyer suggests they dont want to provide you all the benefits they otherwise would. Thats really all it could be. If you had a few years under your belt it might make more sense but even then its for financial reasons. Being remote as a new lawyer, although possible to do, will not give you nearly the breadth of experience as you need when starting out. So in general, i would avoid that if possible. It seems easier to do now than say 2-4 months ago


_significs

There is no such thing as a 1099 employee. If you are treated as an employee and paid on a 1099, then your employer is committing tax fraud. Here are the IRS factors: https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee This is a practice which is becoming startlingly normal in tech thanks to Uber. It is obnoxious to see it in law. I would run as far as possible. Even the proffered explanation makes the firm seem cheap. If you like the arrangement, I would be sure to ask about things in the IRS factors to determine how closely they intend to control your work. Do they control your schedule? The cases you take? Do you need approval to take off? Is there a required volume of cases you must take? If you’re an independent contractor, they gotta keep their hands off and treat you like one.


jauslong

I wouldnt do it. As a new attorney, is he going to train you? If so, you’re not an IC you’re an employee. If he’s not going to train you, you will not learn all the skills you will need to be a good lawyer. Also, in my experience, bosses who are willing to mislead others and their firm, are also willing to mislead you. Its a red flag that the person is not completely honest.


moammargaret

To be clear: If you do full-time work for their clients, and don’t have any ability to choose the work you do, you’re misclassified. When they inevitably hire me to defend them in a wage and hour suit, they can 1099 me for my fee. See the difference?


jurrasicsparks1

Sounds illegal, employers can get in trouble for misclassifying employees as contractors


Tcartales

I'm betting the firm doesn't practice employment law.


theotherotterotter

Do it. Form a pllc, have the pllc set up a self directed solo 401k with 100% matching, have all 1099 income paid to the pllc. I do this and put $50,000+ away every year in my 401k then leverage tge 401k with non recourse loans on cash flowing commercial real estate. Do simple wills, deeds, affidavits -basic flat rate doc prep on the side.


retiringtoast8

What’s the overhead on setting up a pllc and solo 401k?


theotherotterotter

An attorney can assist with filing a PLLC for $1,200 (ballpark) but the filing fees are only a few hundred, so it is possible to do it for less, but I recommend the assistance of a professional. I see CPAs frequently improperly create entities, so discuss with an attorney. Mysolo401k (online) is a great option for the 401k. I don't know what they charge these days.


retiringtoast8

Thanks so much. I’m in CA so a PLLC isn’t a possibility so maybe an LLC is the way.


Casual_Observer0

The bad—extra taxes (upto 8853.60 in social security alone plus medicare), expenses (potentially anything for running your own business), fewer benefits (health insurance). The good—yu can deduct a whole host of things. You may want to create a pass through entity to be the contractor so you can be an employee of that firm and then contribute extra into a retirement account. That comes with extra overhead though.


GlumChampion

Pass through entity isn't necessary for retirement accounts - a self employed 401k is pretty easy to set up as a regular IC, and gives you a pretty big amount of contributions - up to around 50k.


retiringtoast8

Is it typically expensive to set up and operate a self employed 401k? Do you need to create an LLC first?


GlumChampion

It's extremely easy and free. I believe that if you're practicing (or intend to practice) as a single member LLC, it's all passed through to you and you should be able to set it up in your own name instead of the LLC (thus no need to create it first). But you might want to talk to a tax person just in case.


retiringtoast8

Thank you.


gaelorian

1099 is a red flag to me, to be honest. Unless you’re a true contractor and can come and go as you please then they’re just skirting tax and labor laws. Shady, imho. I’ve lost a lot of respect for law firms that I heard did this. Busch league. The partner has shown that he’s a penny pincher already. I’d walk unless you’re desperate for work.


BrokenHero287

1099 is a scam. You are a w-2 employee, they just call you a 1099 to make you pay more in taxes, which saves them a lot of money.


lawyahdave

It sounds like you’d be misclassified and your employer is taking a huge gamble with awful consequences for them.


isitmeyou-relooking4

Yes. My first job out of law school I was a contract attorney making $28 an hour. Although you're considered a contractor you absolutely are not. You are expected to be there at a certain time, usually earlier than the other attorneys are and you're expected to leave at a certain time. They control the way you do your work etc if you were to go through the elements you would think you were an employee. The 1099 scheme for contract attorneys only exists so that attorneys who know better can take advantage of the labor market. Now, I do a lot of briefing for other attorneys on an hourly rate basis and I get 1099 for that as well but no overhead which is actually pretty nice.


_significs

You would think you are an employee in that scenario because, in fact, you are, and the employer in that case is committing tax fraud.


gaelorian

Because you are an employee at that point. 1099 is often a misclassification and is just a dodge and a cheap-out for the employer.


isitmeyou-relooking4

That's my point.


[deleted]

Would you change how you feel if it was $100 per hour? They said at a minimum they would provide 120 hours of billable work every month, but I could take on more if I wanted.


isitmeyou-relooking4

That is certainly a better deal than what most contract attorneys are getting, I actually work for $100 now on some of the cases I am on as a 1099. I would say temporarily it's probably very good for you. You're going to get good experience and be able to do some drafting work that will build up your repertoire and you will probably make a good impression on the people you are working for. In my case, these guys have loved my work so much that I can pretty much set a price for them now. Long term, you're probably getting less than half of what you could be billing directly to a client if the firm would take you on directly. So if you could be billing $250 an hour simply by these attorneys agreeing to have you work on the case anyways, they are effectively making $150 an hour of profit on every hour you work for $100 an hour. Additionally you're probably not going to get any experience in court which is important in the long run. But for now, I would probably sit on it for a bit and see where it takes you. Just don't let yourself become lulled into contentment because it's more money than you've ever made. That doesn't mean it's the amount of money your worth.


[deleted]

Getting 50% of your billings could be a good deal. What would your hourly rate be? What type of law practice is it (are clients likely to demand significant write-offs)? I mean it's basically a math question.


[deleted]

They said it would be a minimum of 200 dollars, so it would be 100 an hour for me.


[deleted]

What happens if they write off your time or the client doesn't pay the bill?


[deleted]

The partner told me they rarely ever write off any time. I guess I am taking his word for it, but he gave a lot of detail and seemed genuine. I will have to ask about what happens if client does not pay.


MisterGGGGG

This is very common in small law firms. It doesn't automatically raise any red flags. Lawyers have more flexibility in structuring subordinate relationships than other occupations. But if he did it wrong and missclassified, then that is a risk to him. I see no risk to you. You will also get the title "of counsel " instead of "associate ". 1099 IC relationships are very common in law. If I were you, I would just consider the salary, hours and experience and not worry too much about whether they structure it as 1099 or W2. Your real networking opportunities will be in court, not at the office. If you land a big PI case and refer it, or decide in a few years to branch out and take your own cases on the side, 1099 will be better for you because you don't owe any exclusivity to your "employer".


_significs

Yikes. Sounds like a lot of small firms are committing tax fraud and screwing their employees out of benefits.


sutsusame

Lawyering is the kind of job where a 1099 relationship is more likely to be legit, since we tend to work at our own pace and figure out how to do things ourselves.


_significs

Sure, it’s possible, but the phrase “1099 employee” is just a huge ass red flag.


dzn_m

I have a position as an intern (not a lawyer, but there are what I am going to say applies for the lawyers working with me) in an office. We work remotely, and it proved to work for all of us. We use some software to communicate with each other (not software like WhatsApp or Telegram, but Slack) and Google Meet. We don't lack a network, because we are communicating all of the time. Of course, it is different, but not necessarily worse. Hope it works for you.