Legal/Tax Guidance Needed: Tax/Work Relocation Question

[Mike Lowe]

Hey, all,

I work remote full-time, and my company is based in Illinois. I recently moved to SD, and to my department's surprise (as they were in the loop on this from the beginning), the HR dept is telling us they do not like to employ folks from California due to the strict tax laws, etc. HR originally thought we were moving to DC, and we just lost touch during the whole transition as I was only keeping my supervisors in the loop.

Luckily, they have made it VERY clear they don't want to lose me, etc. and they offered me a couple of options:

1) Use my rental home as my primary residence
2) Start my own LLC to which I'd bill them as a contractor

It sounds like option 1 won't work now because after running it by HR, obviously the renters would claim the home as their primary residence. I really don't want to go the LLC route because:

1) What if they just decide not to renew me? Could I even collect worker's comp?
2) Wouldn't I lose my 401k match, etc.?
3) Same for losing insurance
4) As of now, they cover my travel expenses. I like that! :)

My company told me they'd give me a raise to cover insurance, etc., but I actually like being part of the team and being under the "umbrella." While being my own LLC would free me from any sort of schedule/time off/vacation, I work from home and that's never really mattered much.

Ok, so I guess my question is, my parents and brother live in MI (separate homes). My work employs people from MI, so could I just change my primary residence to one of their homes, and consider my place in San Diego "a vacation home?"

FWIW, I signed a 1 year lease on a condo here. I do not own any other property, aside from the rental home in IL. I also do not want to go to jail ever! :)

How would this affect things legally, from a tax perspective? What should I do/say and and should I NOT do/say?

Thanks, tax and legal experts!

[digamma]

As a general comment, California doesn't take kindly to companies knowingly misclassifying employees as independent contractors to avoid state tax burdens.

[Mike Lowe]

For sure. I wish they'd just pony-up...

[Desnudo]

Both those options make me think your hr is dishonest

Edit: They're asking you to take on all the risk. If they want to keep you and you have other options I would tell them to buck up and meet their original commitment. It's not your fault they misunderstood the situation.

[Mike Lowe]

Just had a phone meeting with HR. They aren't being shady; they're doing whatever they can to not lose me, because honestly I think they are supposed to let me go. My supervisor wants nothing to do with that, considering our workload and the projects I'm on.

We're still chatting--they want me to go the private contractor route, where I'd essentially "quit" or whatever. I REALLY don't want to go that route, because I like the comfort/benefits of my current situation.

They said I can't use my parent's address or my rental home as a primary residence...sucks because it seems to me like no one would ever notice if I just "vacationed" a lot in California.

At least with the contractor spot, they'd be willing to do a long-term contract (1-2 years at least). That would buy me some time to get situated, and heck I'm pretty sure I could make more money contracting work out to others.

I just don't like the feeling of being left out on some remote island...and now they're trying to take my boat away... :)

Keep the thoughts/advice coming! Am I dead in the water if I go the contractor route?

[Desnudo]

If they offered the option of using your rental as your primary residence they are dishonest or ignorant at minimum. Honestly it doesn't sound like they are truly invested in keeping you around if they aren't willing to figure out the payroll situation. So they may feel like keeping you around versus absolutely needing to keep you around if that makes sense. How big is the company?

They are asking you to assume all the risk in any scenario if they aren't willing to keep you on the payroll as FTE or you do some shady thing with your primary residence that exposes you to legal risk.

I've known plenty of contractors that have made careers out of it although they lived where the mother ship was so the business was right there. What if the economy is in the tank in 1-2 years and you can't renew and can't find another job. So you need to be compensated for that risk now - would contracting pay you more less the additional overhead?

[MacroGuru]

I accepted a private contractor position last year in May. I am in the process of moving to Vegas this year, however I set up a new residence in Vegas.

LLC is in Nevada as well. Buffalo is now a secondary residence for me. I have been to Vegas 3 times in the past year, but I have really only been in Buffalo like twice a month every month since then for the kids.

I ran this by my accountant, my attorney and they both helped me set things up properly so I shouldn't be bit by it.

[CU Tiger]

Just thinking out loud.
Ive never ran a 1 man company so maybe that makes it different. But would self employment tax penalties not kill you unless they were proposing a 25% raise?

Another thought, in your first post you said
the HR dept is telling us they do not like to employ folks from California
They "dont like to" or they "do not" pretty big difference here. If they employ anyone else in CA I'd fight that.

Not sure on CA status as a right to work state, but Id think you'd have a wrongful termination argument if they fired you for a move they approved, and your supervisor is "they" here. You could even argue you made the relocation decision based on his advice and expect them to cover all the expenses you've incurred moving here and cover the expenses of you relocating to another state again. Maybe.

Good luck and keep us posted either way, these are always fascinating cases to me.

[Mike Lowe]

Thanks, guys!

I will try and answer all of the questions here. Your advice is helping me out. I am someone who prefers to work to live, not live to work, which is one of the biggest reasons I like my current situation--I make plenty for myself to have a nice life, it's easy and stress free work, and I get to do it 100% remotely.

On to some answers...stay tuned!

[Mike Lowe]

If they offered the option of using your rental as your primary residence they are dishonest or ignorant at minimum.

That was my supervisor's mistake. In discussing with me, he just brought it up as an idea.

Honestly it doesn't sound like they are truly invested in keeping you around if they aren't willing to figure out the payroll situation. So they may feel like keeping you around versus absolutely needing to keep you around if that makes sense. How big is the company?

The company is a university/college. I honestly am not sure how many are employed, but we have people working in at least 10 or so states. My office alone in Chicago had a good 100+ people? There are different divisions and smaller companies that are part of the college umbrella too.

They are asking you to assume all the risk in any scenario if they aren't willing to keep you on the payroll as FTE or you do some shady thing with your primary residence that exposes you to legal risk.

The problem was that when we ran things through HR, we told them DC, which they are fine with. The do not employee anyone in California, and when I pressed on that a bit today, I was told it's not possible.

I've known plenty of contractors that have made careers out of it although they lived where the mother ship was so the business was right there. What if the economy is in the tank in 1-2 years and you can't renew and can't find another job. So you need to be compensated for that risk now - would contracting pay you more less the additional overhead?

I have the education/experience where I'm not worried about the industry going anywhere--I'd either be teaching or designing for teaching, like I am now. If not, I'd make do--I'm insulated on a few fronts.

[Mike Lowe]

I accepted a private contractor position last year in May. I am in the process of moving to Vegas this year, however I set up a new residence in Vegas.

LLC is in Nevada as well. Buffalo is now a secondary residence for me. I have been to Vegas 3 times in the past year, but I have really only been in Buffalo like twice a month every month since then for the kids.

I ran this by my accountant, my attorney and they both helped me set things up properly so I shouldn't be bit by it.

Marco, who would you recommend contacting/sitting down with as a first step to getting something setup with an LLC? It also seems like a partnership, even at 1%, helps a lot here in California.

I'd like to get some advice, professional/reliable/accurate, without spending an arm and a leg if it's not needed.

[Mike Lowe]

Just thinking out loud.
Ive never ran a 1 man company so maybe that makes it different. But would self employment tax penalties not kill you unless they were proposing a 25% raise?

From what I understand so far, it looks as though the self-employed tax is at 15.3%. It's paid quarterly throughout the year. So does that mean I should expect to "put away" 15.3% of my earnings? That doesn't seem high enough?

Another thought, in your first post you said

They "dont like to" or they "do not" pretty big difference here. If they employ anyone else in CA I'd fight that.

They do not. They used to, and changed their policy on it.

Not sure on CA status as a right to work state, but Id think you'd have a wrongful termination argument if they fired you for a move they approved, and your supervisor is "they" here. You could even argue you made the relocation decision based on his advice and expect them to cover all the expenses you've incurred moving here and cover the expenses of you relocating to another state again. Maybe.

That's something I'll keep in my back pocket. I know they're being careful in both putting an offer together for me, but likely for things like this too. They're good people, and it's really just HR being HR to protect themselves as best as possible.

Good luck and keep us posted either way, these are always fascinating cases to me.

Thanks! Pressure leads to diamonds! :)

[DaddyTorgo]

What's so onerous about California?

[Mike Lowe]

Yeah, no idea, DT.

[CU Tiger]

From what I understand so far, it looks as though the self-employed tax is at 15.3%. It's paid quarterly throughout the year. So does that mean I should expect to "put away" 15.3% of my earnings? That doesn't seem high enough?





In my experience, and Im no CPA, the LLC will have a tax liability (your self employment tax penalty you hear about) then you will have an income tax burden. So if 15% is the number and you make $100k.
Your LLC will owe 15% on the 100K.
Then you as th eonly employee will owe your regular AGAI tax rate on the full $100k as you cant deduct tax liability from income.

hence why I said they better be giving a 25% bump with this.

Sorry for format on phone

[Radii]

hence why I said they better be giving a 25% bump with this.

25% may not be enough given that you'll also be getting an individual healthcare plan and not getting the group discount you get through your employer plus the loss of value of paid vacation/sick time. Any sort of retirement plan benefits (401k matching if it exists could be massive), etc etc.


I'm self employed but I never went the LLC route, I just do the simple (relatively) sole proprieter/individual independent thing, which suits my needs just fine.

[Mike Lowe]

Thanks, guys. Yeah I see the minimum being a 25% increase, which would include a 401K match I'd be losing. I tend to fare far better with my own Roth IRA than I do even with the company match...didn't earn me crap last year, in a good year.

Keep in mind, this would be my only contract, the 25% incease. I'd like to think I could at least pick up another one or two over the course of a few years.

[Mike Lowe]

What are the chances this all just goes away if I update my address to my parent's in the system? This is what started this all anyhow...

[Blackadar]

Mike, I've been giving this a lot of thought. I know you're trying to be accommodating, but I think you're being overly so. That's a great attitude to take, but ensure that you're also protecting yourself.

1. Collect all documentation regarding this move, including when you told your boss that you were moving to CA and not to DC. If this goes south, HR's first attempt will be to terminate you for lying about your relocation destination. Ensure that you can fully prove that your management knew you were moving to (beautiful) San Diego rather than DC. This is your management's fault and you need to make sure you can prove it.

2. I think you need to contact a labor attorney in CA. Whether they like it or not, your company now has an employee in CA and must abide by CA regulations. It's funny that they've said "its not possible" because not only is it possible, it's already happened!!! I have no idea if it's legal for them to fire you because you live in CA and you probably need to find out. It very well may not be and by raising this issue the company may have just made you quite "termination-proof". At the very least, you need to ensure that you're doing what it takes to protect your own rights if they do decide the easiest out is to terminate you.

3. If you do decide to go as an independent contractor, 25% is not enough. You'll have payroll taxes, health insurance, business insurance, incorporation costs, expenses, you'll need to hire tax preparers, no sick/vacation leave, no company life/disability insurance, no retirement matching, no 401K plan, etc. Depending on what you earn, it's likely to take between 35% and 40% of your current salary just to meet these additional expenses.

4. On that note, if you do that direction you'll also need to establish clear lines of responsibility and get an airtight contract (there's another expense - legal). As an independent contractor you won't be subject to a 40 hour week, or management policies, etc. They'll have to have a hands-off relationship with you for that to pass the sniff test. If not, they'll just set themselves up for a lawsuit later.

5. Again, if you do that route I strongly suggest that you make the most of it and work to find other clients and contacts during your contract period. After all, it's now "your business" and you will need to run it as such. Don't depend on them renewing the contract after the period is up, so ensure that you have other sources of business.

6. Finally, if you decide that you like your company more than you like San Diego (though I'm not sure how since SD is awesome), you could always volunteer to move again provided that the company picks up all the moving costs, the broken lease expense, the utility hook-ups, the cost to register your cars in another state, etc. If this is an option, make sure you don't short yourself with all the various expenses it takes to move. For instance, it will probably cost you hundreds of dollars to register your car in a different state. That's one of those types of expenses people don't think about...

7. Lying about your place of residence won't work. It opens you up to tax penalties and possible criminal litigation for tax fraud. Don't take that risk.

I hope some of this helps.

[Mike Lowe]

This is absolutely great, Blackadar! I'll be contacting an attorney this morning just to prepare "my opening statement" fot the next time we talk ("Well, according to my labor attorney...").

I feel like this is going to defintely work out fine. You've made it seem pretty clear that this is not my fault, and I shouldn't be treated like it is. In hoping at the very least, they'll "make it worth my while." Luckily we're all on good terms, but you never know when that may change, and I'd like to be prepared.

As for some more background, I've gone through any documentation I've signed, and nowhere does it indicate anything about California, etc.

When I got the promotion and approval for remote, I was told in-person--in a room with my boss and just his boss--that I could move anywhere in the US. There was never anything signed citing a destination, but there also wasn't anything limiting any destination. They did check into things for me with HR using DC as the place. Everyone in my department knew about San Diego weeks ahead of time, and my supervisors knew for a couple months, at least.

I worry that since the company switched my department back to the college January 1st (I submitted my address change January 3rd), that somehow it could screw me? My department use to be a seperate company underneath the college umbrella, but now we're together as one again. The boss of the boss who said this is still with the "umbrella" company. Same building, etc. Hell, I saw him briefly when I was in Chicago for a workshop.

[Blackadar]

This is absolutely great, Blackadar! I'll be contacting an attorney this morning just to prepare "my opening statement" fot the next time we talk ("Well, according to my labor attorney...").

I feel like this is going to defintely work out fine. You've made it seem pretty clear that this is not my fault, and I shouldn't be treated like it is. In hoping at the very least, they'll "make it worth my while." Luckily we're all on good terms, but you never know when that may change, and I'd like to be prepared.

As for some more background, I've gone through any documentation I've signed, and nowhere does it indicate anything about California, etc.

When I got the promotion and approval for remote, I was told in-person--in a room with my boss and just his boss--that I could move anywhere in the US. There was never anything signed citing a destination, but there also wasn't anything limiting any destination. They did check into things for me with HR using DC as the place. Everyone in my department knew about San Diego weeks ahead of time, and my supervisors knew for a couple months, at least.

I worry that since the company switched my department back to the college January 1st (I submitted my address change January 3rd), that somehow it could screw me? My department use to be a seperate company underneath the college umbrella, but now we're together as one again. The boss of the boss who said this is still with the "umbrella" company. Same building, etc. Hell, I saw him briefly when I was in Chicago for a workshop.

I wouldn't use the "according to my attorney" yet. It's just good to know your rights in case push comes to shove.

You don't have an email or ANYTHING that says you were moving to CA? Nothing to your boss at all?

[Mike Lowe]

I'm, searching now...I have approved travel from the company we use (that is approved by others I'm pretty sure) with San Diego as my starting point.

I also have an email from Dec 2nd where I forwarded my flight info to my two supervisors just as an FYI as to when I'd be in.

There's an email from Sept where I'm asking for permission to work remotely in CA, but just for my gf to attend her interviews. The way it's worded though, it seems pretty clear we're going to check out the area for a potential move...nothing is wording that EXACTLY, though.

I began my move Dec 21st...

[Mike Lowe]

I still haven't heard anything since that last phone meeting. Not a peep.

I called a lawyer and he didn't think there was much to worry about going the contact route, etc. He did say something interesting, saying, "You've worked here in Cali for a month already, so your work does has an employee who works in California whether they want one or not."

Probably most likely putting an offer together (still?), but it'd, be great if it just vanished.

[Mike Lowe]

Still no news, but I did just get a call from another supervisor indicating that they were going to get my merit pay increase retroactively setup. This was something we were told about a few months ago...

Is that a good sign that this is just going away?!!?

[Blackadar]

Mike, I'm sorry I missed your responses.

1. Your attorney said the same thing I did - the company has a CA employee whether they like it or not.

2. It sounds like your emails would be enough to cover your ass.

The merit pay thing sounds encouraging. Actually, the whole thing sounds like your HR department is a bunch of lazy fucks and don't want to do their jobs.

[Mike Lowe]

Blackadar,

Not having to work with them directly, I'm cool with that haha.

I'm wondering if getting W2's ready, and now all of this merit pay getting caught up (they wanted to get everyone on the same EOY schedule)...Maybe I'm next on the chopping block?!

I'm hoping that if it was such a big issue, they'd have dealt with it by now...

[Mike Lowe]

I got a letter in the mail from the president and vice president of the company. Hand-written.

It was welcoming back to the team after our switch over again starting in 2015.

This was obviously sent to everyone on the team, but it was a bit alarming seeing it at first, and then very funny after I read it.

I guess now I have proof of them knowing I've moved! Even if it has a "notify sender of new address" sticker, I can at least say, "I tried! It's still pending!"

[Mike Lowe]

Got a meeting schedule with my two supervisors set for Thursday morning. The meeting is titled, "Remote Work Update" and I'm assuming it's to do with this whole ordeal.

Odd that it's just with the two guys I report to...basically work buddies. They are definitely on my side of things, but also don't call all of the shots.

Thoughts? Pointless to try and speculate?

The lawyer and Blackadar seem to agree--I've been working in California for a month now...seems to be their problem, not mine.

[Logan]

Since it's who you report to, and not HR (or legal), it could just be an official meeting they want a record of indicating they're giving you direct supervision despite the distance.

My direct boss works in Chicago and I'm in NYC, and we have a standing meeting every two weeks where he checks in on me in an official capacity even though we speak in one way or another pretty much every day.

[Mike Lowe]

Yep, we already meet like that each week though.

[Mike Lowe]

Finally have an update! 5 months later!

1 year contract starting next week
18% raise
If I move during that time, they will reinstate/rehire me as full-time employee
After a year, I will need to decide to move to a state that's NOT California (and a few others), or find a new job. The contract will not be extended.

They said this was an offer to buy me some time, something they wouldn't have necessarily done for everyone. They want me to stay (made that very clear), but have to follow the guidelines of the college as well.

So...do I...

Stay in SD and find a new job
Move somewhere else (Arizona maybe? Back to Chicago? Back to Michigan? Utah where my gf's family lives?)
Lie and just tell them I moved in with my parents! :)

[Mike Lowe]

I consider myself lucky regardless because there are a TON of people who may lose their job May 2016, but I have the benefit of knowing 12 months ahead of time. I also have a contract guaranteeing me good money for at least another year. Lastly, I can easily solve all of this by just moving (my renters even move out June 1, 2016 back in Chicago).

Hell, I could even get a second full-time gig for this next year and still get my work finished on-time since I no longer have to keep a schedule.

Girlfriend just started her new job here in San Diego, but is open to really whatever we decide. I'm a lucky guy!