- May 18, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Issue with Payment Agreement and Tax Implications
### Description of the Situation:
I have been working as a contractor for Business for over a year, dedicating a few hours a week to their projects. In our agreement, Business collects a fee for my services and retains 30% as their commission, paying me the remaining 70% once I send an invoice.
### Recent Development:
Recently, I was not kept in the loop about the progress of a specific project. Today, I found out that I am now expected to collect payment directly from the client. Furthermore, Business still expects me to pay them their 30% commission as per our original agreement. This unexpected change has caught me off guard and raises concerns about potential tax implications. The situation appears suspicious, and I feel uncertain about how to proceed.
### Legal Analysis:
Upon reviewing the original contract, it clearly states that I am to be “remunerated at a rate of 70%”. However, if I am the one collecting the fee and then passing on a portion to Business, I am not being remunerated as agreed. This discrepancy raises questions about the validity of the payment arrangement and whether it complies with tax laws.
### How AI Legalese Decoder Can Help:
AI Legalese Decoder can assist in analyzing the contractual language and identifying any inconsistencies or violations in the payment agreement. By inputting the contract into the AI tool, it can quickly highlight any discrepancies between the agreed-upon terms and the current situation. Additionally, AI Legalese Decoder can provide insights on potential legal remedies or steps to resolve the dispute with Business.
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My first concern with this arrangement is that being responsible for collecting fees could potentially make you responsible for paying them their 30 percent even if you don’t collect.
Separately (but also concerning) is that managing payment and ensuring you get paid is what their 30 percent is supposed to cover…
You need a lawyer to look at the details as set forth in the contract you signed. If fee collection was not included as part of the original deal, Business is operating outside the defined parameters and you may be in a position to renegotiate.
I am an independent contractor and work as a subcontractor (in the trades) and my contractual obligations are solely with the company that hired me, not the customer or anyone else down the line. In my case, the customer would be the builder, homeowner or property management company or combination. As such, I am not expected to collect payment on behalf of my employer (the firm that hired me) and the down line customer’s inability to pay is not my concern.
As a consumer, I have placed service calls with utilities (eg internet, furnace issues, water heater etc) and they typically engage à subcontractor to come out to perform work. On occasion, the subcontractor technician has been responsible for collecting payment from me – I was made aware of this by the utility company. But I can’t speak to what arrangements the subcontractor had with the utility company.
“As per our contract…”
You should get a bigger percentage or a higher pay rate. Currently you always get paid even if they don’t (right?) Now they always get paid even if you don’t (I guess).
In addition to a lawyer you might want to speak to an accountant about this change in their business model. It could leave you on the hook for more taxes
or complicate your bookkeeping, as you need to keep records of what you collected and what you paid them.
As a consultant myself, this arrangement makes me wonder. If you issue invoice and collect payment and subsequently remit the 30% to business:
* Whose name is the invoice under? You or Business? There are tax implications. Do you also collect GST?
* What do you pay Business 30% for? Usually the 30% is for administration like, well, issuing invoices and collecting payments.
* Who has contract with Client? Presumably Business. Can the Client pay you directly, someone who does not have contract with them?