So they hire a contractor instead and pay them as a 1099 contractor, or the contractor sets up an LLC and they pay the LLC, or an S-corp.

Doesn’t matter how they pay them, if they treat them as an employee (there’s a 20 part test) they are a de facto employee and it’s false self-employment.

It's a standard case of one company (a third-party) purchasing the services of another (a company you simultaneously both own, and are employed at).

The IRS will look at this situation and determine either the owner of the LLC is a de facto employee or not.

Whether they are billing though an LLC or not is not one of the factors.

Here’s a quick read about the topic: https://www.trimprulaw.com/an-individual-who-has-an-llc-is-a...

“Just because an individual which is engaged by a business has an LLC, does not mean that the DoL will classify that person as an independent contractor.”

And if that's a fiction, a judge will see straight through it. Ask a lawyer if you don't believe us. I can think of several examples in the news lately in my country of residence.

I never claimed that "pro forma" contracts used for laundering illegitimate business relationships are somehow legal. This feels to me like an entirely separate issue, and I'm not sure how it's related to anything we've discussed so-far?

You can own a company, and simultaneously be the only employee in that company. Your client enters into a contractual agreement to purchase services from your company. Your company must comply with all local laws and regulations as part of your employment in that company. Your company charges the client a fee which, down the line, covers all of the business expenses associated with the work being done (including any taxes that need to be paid, overtime, insurances, pension, social security, etc). I'm still, to this moment, not sure what makes any of this illegal or illegitimate?

Whether the engaging company pays you directly or pays an LLC you own is not part of that test.

If the IRS or a local government decides that you are being treated as an employee of the company, they will ignore the intermediate LLC.

Think about your argument for a second. If it holds true, employment laws are useless.

Single owner LLCs are pass through entities and they have no obligations to pay minimum wage, overtime, unemployment insurance etc…

If your interpretation of the law stood, every company would simply require each employee to form an LLC and pay each employee as an independent contractor.

In fact many companies do try this, and the IRS and state departments of labor go after them for it regularly.

Perhaps an LLC (which is a pass-through entity) is the wrong structure to use here then. Perhaps a C-Corp would be more suitable?

Here's one example of what I'm referring to: https://www.altinn.no/en/start-and-run-business/planning-sta...

> "If your interpretation of the law stood, every company would simply require each employee to form an LLC and pay each employee as an independent contractor."

But that's exactly how companies hire external contractors today, so I'm not sure why you're suggesting there's anything wrong here?

The reason companies don't require each and every employee to form an LLC is because it makes things more difficult for everybody - not because it's illegal. Direct employment is much easier to manage, hence it's more popular. I don't see your point?

>much easier manage

This is patently false. Contractors are much much easier to manage.

It is perfectly legal to hire contractors. There is nothing wrong with this. What you can’t do is hire a contractor and treat them as an employee.

There is a legal difference. The IRS has a 20 part test.