Ethical dilemma: hiring sewing subcontractors

A friend submits:

I recently interviewed and auditioned a short list of stitchers who do beautiful work. I am seriously considering using these stitchers as subcontractors for overflow work. My dilemma is that I do not know – nor do I think it’s appropriate to ask – their residency status. And whether that is even a concern for me. Am I putting myself or my customer at risk?

Employment law indicates that, as an employer distributing W2s at the end of the year, I need to collect an I9 form to verify all employees are legal residents. However, my company is not organized that way. For all intents and purposes, I function as a general contractor that manages and distributes work across a network of subcontractors, be it a single CMT shop or a dozen home-based independent stitchers. End of year results in the printing and mailing of 1099s, which, frankly, I find to be much easier, administratively, than reconciling all the accounts that go with a W2-based shop.

Just like any other audition: I show stitchers the pattern and let them walk it. I pay for audition sample – always. When they return the sample, we compare against the sew-by and talk. They tell me how much they need to earn for the work. I compare that against standard time and the client’s budget. If the price is fair and the work is done to spec, I place it. Upkeep and management become my only concern at this point (i.e. How do they manage deadlines? Does the quality remain consistent? How many repairs are needed? Do they adhere to the terms we agreed to, initially? etc.)

For my part, I honestly do not care who does the work so long as: a) they can do it, b) they do it well, and c) they feel like they’re getting fair value. I do secretly covet the idea of developing enough work to steal these people away from neighboring shops who are rumored to be exploiting them – so, there’s personal impetus to pursuing what I see as a ‘win-win’ situation. However, I do not want to place my business or my client’s at risk. Can you share your opinion based on what you may have seen working in border towns?

Do I need to explicitly state that my friend is not seeking to exploit these workers? In private conversation, his attitude was protective toward them. If anything, he’d like to throw them enough work that he can uproot them from another employer who is most likely exploiting them.

In email discussions, as I understood it, he is referring to three stitchers who work together as a business. Whether they are a official enterprise is anyone’s guess. Where does one draw the line? If you hire a business, that business is responsible for having legally documented employees. There’s one exception, being the State of California. There, any needle trades business is required to have a special license (even designers working out of a home office) and legal status of workers is part and parcel of licensing. As such, in the normal course of affairs, one requests the license number of anyone with whom one contracts. It’s easy enough to verify whether their license is in force or whether they’ve been suspended. Outside of California, perhaps these IRS guidelines on whether one is an independent contractor versus employee will be helpful. Also see this twenty point checklist.

In my business, I’ve only hired other businesses in the past seven years with the exception of Danielle but she’s Canadian and I’m pretty sure I’ve paid her less than $600. While professional, I don’t know how she’s organized her business. For more insight on this question, I asked Eric. As an administrator, he has a lot more experience than I do. This is what he said:

  1. Why do a W2 or a 1099? If they’re not an employee, then no W2. If they are not an individual or a partnership and you aren’t paying more than $600 in a given tax year, then no 1099. I didn’t send a 1099 to the tile setter, and that was more than $600. If they are a business (as opposed to an individual or partnership), your check and their receipt should be all that is necessary. What would it take for them to become a business?
  2. What would it take to get them a Work Visa (H1-B)? I think you may have to show that nobody else wants the work … in which case, if you are advertising and nobody else is responding, then that seems like proof. Also, I think they have to show that they have skills meeting or exceeding the Occupational Outlook Handbook which states:

“Outside of the manufacturing sector, tailors, dressmakers, and sewers —the most skilled apparel workers— are expected to experience little to no change in employment. Most of these workers are self-employed or work in clothing stores. The demand for custom home furnishings and tailored clothes is diminishing in general, but remains steady in upscale stores and by certain clients. Designer apparel and other handmade goods also appeal to people looking for one-of-a-kind items.”

There’s lots more work for you to do if you walk the H1-B path, see this. You would have to become the employer and fill out Labor Condition Application ETA-9035, wait 30 days, then (assuming acceptance) a work visa petition (USCIS I-129 and H-supplement), wait 8 weeks, … and, you have to become an employer. Back to the W2s. Also see this.

You may have an additional problem: if they are here illegally, then the H1-B thing may be tricky. You’re supposed to have all of the paperwork done before they enter, and their presence here may do them in.

Regarding the client, I think there is much more danger of being exposed as a sweatshop operator who exploits immigrants than as someone who pays a fair wage to undocumented workers. Even if you could rightly claim to be the latter, the press (and populist politicians in a close race) might always try to spin you as the former. If you decide to proceed anyhow (because you think it’s the right thing to do), get ready to go to war, i.e. lawyers, PR campaigns, press releases showing how much you paid them vs. the area wage determination, etc.

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  1. Abigail says:

    In regards to the 1099, here is my understanding on the rule as to when someone must get a 1099 for services paid over $600. I just had a lengthy discussion with a CPA regarding this issue.

    “…compensations for services performed for your trade or business by an individual who is not your employee…”

    What this statement means is if you subcontract to someone for the purpose of your business and you pay them more than $600, you must get a W-9 with their social security number or EIN. Then at the end of the year, you submit a 1099-MISC for them. If they are incorporated, you do not need to do the 1099. Who would fall in this category…pattern makers, sewing contractors, sample makers, etc. as individuals or unincorporated businesses. These are people that you hired in order to do your trade/business.

    So if you hire someone to fix your business computer and you pay them over $600, you do not 1099 them. Because they not part of your trade/business.

    You do not need I-9 documentation for work you are subbing out to others, just a valid and legal social security number.

  2. Eric H says:

    Eeek! “A lot more experience” maybe, but not a lot more experience in hiring individuals! Almost everything we do requires large businesses, with one exception, and I happen to know he’s incorporated.

  3. Mike C says:

    You’d best spend some quality time with the IRS guidelines (see publication 15-A) before jumping into hiring independent contractors for sewing.

    Basically, if you hire an “independent contractor” to work out of their home for you on sewing, its very difficult to get them classified as anything other than “statutory employees.” Statutory employees are basically the same as W2 employees in the eyes of the IRS and have to be treated the same from a tax standpoint.

  4. Anita says:

    I think the term of the work also comes into play. I work as a contractor/consultant in the software industry (for now :-) and sometimes work “on 1099”. I’ve been told by those who hire me that as long as there is an end date on the contract (so it can be considered temporary) that is within a certain time period, then it’s okay.

    This is just hearsay, mind you, and it’s a different kind of work, but that’s what I’ve been told. It’s been a while since I looked into the specifics and I usually work on a W-2 basis through contract agencies, since it’s easier and I can collect unemployment between assignments. Are there any such agencies available for sewing contractors? I know there are some who deal with manufacturing. It might be another option to use one of these as a pass-through service, though it will cost more for the agency overhead.

  5. Mike C says:

    Many (most?) people that are hired as 1099 contractors should really be classified as employees.

    Enforcement has been stepped on up the issue. As far as I know, there’s no liability on the part of the employee (as long as they accurately report and pay their taxes), but there is on the employers. Not an area I would choose to mess around with as an employer.

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