Employees becoming consultants

Caroliso

We are very careful about allowing employees who leave our employment to return as consultants. Every now and then an employee in this situation asks about a supposed rule that says (1) employees must wait a year before becoming a consultant for their former employer or (2) one is not allowed to show income from the same employer on a W-4 and on a 1099 (for consulting) in the same tax year.

Can any of you accounting or HR wizzes out there shed light on these rumors?

Thanks.

sonny

I'm no wizz but if there is a rule, I am not aware of it and when I left my last employer I had agreed to help them out on a few things and received a 1099 and a w-4 in the same year. That was 5 years ago and the IRS hasn't said anything yet.

HRQ

Neither am I aware of such a rule. Last year, we eliminated a position, then contracted the individual to complete one task on a monthly basis that used to be part of her responsibilities as an employee.

She earned wages from us as an employee and a contractor during the same year, but not during overlapping times.

Margaret Morford

There's no prohibition that I know of, but when an individual receives both a W-2 and a 1099 from an company in the same tax year, the individual is very likely going to be audited by the IRS. It's an immediate red flag. This in turn may get the company audited. That's probably the reason for the rule.

Margaret Morford
theHRedge
615-371-8200
[email]mmorford@mleesmith.com[/email]
[url]http://www.thehredge.net[/url]

Caroliso

thanks, all, and Yikes, Margaret! I hadn't even thought of that. I think our rare instances of doing that would hold up, but nobody wants an all out audit!