Per Diem and a information about...

[bitblt]

Johnson Service Group in Atlanta.

Has anyone worked with them? How was your experience?


I've asked for $45/hr for a job in Chattanooga. Johnson has suggested $25/hr plus $20/hr per diem. I was told it was to save taxes though they said I could have it as $45/hr if that's what I wanted..

Is there a hidden motive  in being offered $20/hr per diem?

[pxsant]

They are correct in that you would only be taxed on the $25 if they pay $20/hr in per diem.  The only danger is that they may not pay the per diem on the same schedule as the regular pay.  Ask them specifically what their payment schedule is on per diem.  Otherwise you could walk into a situation where you get your normal pay regularly but they pay per diem on a much longer schedule like monthly or bi-monthly.  You could risk being out of pocket a significant amount of money while waiting for a per diem check.

[Origisaurus]

Is there a hidden motive in being offered $20/hr per diem?

This is an old scam.  It used to be called "PD split".  Their motivation is 1) reduce employer contribution to FICA and 2) make you think you're getting a "deal".  Fact is, you may save a very little on taxes because the $20 won't be reported on your W-2 (if they do it correctly).

Trouble is, it's illegal.  If they get caught, they would have to pay both employer and employee ends of FICA on the $20.

"Per diem" means "per day", not per hour and you are entitled to it for every day you're away from home.  By paying it per hour they would be making wages, not reimbursement.

[The Gorn]

The fiction that an on-site contractor is a vendor, when in reality they meet few of the IRS 20 Questions standards and are treated pretty much like FT staff?

In other words, it's total bullsh*t, but everyone involved winks at it and it is tolerated.

>> Trouble is, it's illegal. If they get caught, they would have to pay both employer and employee ends of FICA on the $20.

The specific problem I could see is if the $20/hr exceeds the daily per diem allowance for that city. (doesn't the IRS follow the GSA schedules or something?) I know you're saying that the hourly basis for the payments is improper and I agree. But I don't see why it is "illegal" as long as the total amount that bitblt receives per day is at or under the per diem recommendation.

I'd think the IRS would go with gross per period amounts in evaluating the propriety of the payments.

[pxsant]

You are technically correct.  If they pay 20/hr, they would actually have to quote and document it as a day rate to stay legal.  Also I believe they would have to spread it over the month counting weekends assuming you were out of town the whole month.  So if you were getting $20/hr or $800 per 40 hours, they would have to divide the $800 by 7 days to get a day rate of $114.29.  I have not checked the IRS docs for a few years so I might be off.

[Origisaurus]

G0ddard B0lt wrote:  
 
  >> Trouble is, it's illegal. If they get caught, they would have to pay both employer and employee ends of FICA on the $20.  
 
  The specific problem I could see is if the $20/hr exceeds the daily per diem allowance for that city. (doesn't the IRS follow the GSA schedules or   something?) I know you're saying that the hourly basis for the payments is improper and I agree. But I don't see why it is "illegal" as   long as the total amount that bitblt receives per day is at or under the per diem recommendation.  
 
  I'd think the IRS would go with gross per period amounts in evaluating the propriety of the payments.

I'm going by an old case that was discussed on CEWeekly many moons ago.  And the way I'm describing it was what actually happened.  The IRS position was that since it was calculated hourly it was wages, and the borque was on the hook for several contractors over several years.  Borque couldn't go after most of the contractors since they were no longer on the payroll.

The IRS uses Treasury Publication 1542.  It has some complex tables and it boils down to the amounts they think you can prove anyway.

Usually, the PD split doesn't cover Pub 1542 allowances.  The idea that there would be some overage just doesn't seem to come up.  I don't know what the rate might be for Chattanooga.  At $20/hour, a 40-hour week would get $800 PD.  Divide that by 7 and you get a daily rate of about $114, so the $20 puts you in the ballpark.

[pxsant]

One thing not mentioned so far .

If this is an actual away from home situation where you would need to stay in a place like Extended Stay America, the "all inclusive" rate (whether it is split up or not, does not matter) of $45/hr is really low.   You would be looking at $300 to $500 per week in short term living expenses.   You would be left with maybe $30 to $35 per hour.  If you did not have to maintain your home base also, you might still consider it.

[Richardk]

Yes this is low but it's similar to what I'm seeing. In the end, is the rate good enough after expenses?

Also as stated, it's "per day" but nearly everyone calculates it by the hour. Double check the offered rate against the IRS tables and the actual costs that you would incur to see if it adds up.

Finally in this economy, I'd ask what happens to the per diem if work slows down? Say they cut back to 32 hours / week. If it's too far to commute back home, your hotel is still charging you but you're not getting a full weeks per diem.

And yes, they are saving money on taxes, so they are doing themselves a favor as well. The implications for you are how will the "per diem" dollars impact your taxes, social security and now unemployment calculations (that economy thing again).