1099 Fee Split Dispute 1

[Structura1Engineer]

TLDR: What's a fair split of fees for a 1099 contractor? Licensed Engineer produces all the construction documents and engineering. Owner procures the jobs, stamps and reviews.

I'm a licensed Senior Structural engineer with 15 years of experience and started moonlighting on a part-time basis for a former colleague of mine who started their own small 1-person firm. He's too busy and asked if I would be interested in working on some of the excess jobs for him as a 1099 contractor. I provide my own drafting software and design tools, but I'm using his template for uniformity in design. This was similar work that I have done in the past and was able to get up to speed quickly and knocked out about 5 small jobs in a month.

We decided to do a fee split of 70/30 instead of going hourly. It's simpler and it seemed equitable that since I would be doing all the production that I would get the 70, and he gets the 30 for owning the business, finders fee, stamping, and a little review time. But when I went to submit my invoices, it turns out, he thought I had proposed he gets the 70 and I got the 30, which was quite the miscommunication! I had already requested a formal contract in writing prior to this, which was something he was working on, but we were still in the feeling each other out phase of any working relationship.

We disagree that the engineer doing production should get the higher number of the percentage, but I wanted to pole other engineers on what is fair. Are there any market salary reports that cover this specific area of consulting engineering fee splits? I usually just see salary reports which isn't helpful here.

 

[Ron247]

I always thought the stamp indicated you reviewed the work, approved it and was responsible for it. Some firms review and stamp work done by unregistered EITs all the time. That is what happened for me my first 3 years out of college. The stamper is the one who gives it the official Okey Dokey.

 

[gte447f]

As a 1099 independent contractor this situation seems shady the way you are going about it almost more of a finders fee which is illegal in most areas? You really should be the one stamping the end product, you did the work and you aren’t an employee. Are you listed in their professional liability insurance? Really you should be involved in the proposal stage as a sub providing hours of work with a detailed scope and cost to base your fee. His liability insurance will want to know how much work is being subcontracted, how is the contract written. I would expect that if any issues go to court you would likely be dragged in and not covered under their policy.

One concern is your statement he’s too busy, if that’s true does he do a proper review or just stamp the design? Do you transmit all related work to document a review such as calculations, assumptions, models?

I don't see it that way at all. Of course we only have partial information, but it sounds to me like the business owner/EOR is a licensed PE who is simply hiring a 1099 contractor to perform engineering under his supervision. State laws and engineering rules may vary, but generally, I think a worker doesn't have to be a W-2 employee for the EOR to exercise responsible charge. There is no reason that the hired engineer needs to stamp the drawings if he owner/EOR is supervising the work. This doesn't sound like a finder's fee to me at all, or plan stamping, and I think PL insurance will cover the 1099 contractor. Also, too busy to do all of the production engineering does not equate to too busy to supervise that work. That is the whole point of division of labor in most engineering offices.

 

[jhnblgr]

I don't see it that way at all. Of course we only have partial information, but it sounds to me like the business owner/EOR is a licensed PE who is simply hiring a 1099 contractor to perform engineering under his supervision. State laws and engineering rules may vary, but generally, I think a worker doesn't have to be a W-2 employee for the EOR to exercise responsible charge. There is no reason that the hired engineer needs to stamp the drawings if he owner/EOR is supervising the work. This doesn't sound like a finder's fee to me at all, or plan stamping, and I think PL insurance will cover the 1099 contractor. Also, too busy to do all of the production engineering does not equate to too busy to supervise that work. That is the whole point of division of labor in most engineering offices.

Only if you are listed in the insurance, I have had this discussion with my insurance already. To be an independent contractor you must make fit a certain criteria, if you don’t meet those criteria you are an employee so I question if you could be an independent contractors and have a supervisor, wouldn’t that make them an employee legally? As a professional should you not be the one stamping the document and standing behind your work? Is the business registered as a sole proprietor or a PC, PLLC? Does the business have a certificate of authorization if required?

As for the EIT part, they are employees under different supervision and unable to stamp plans.

The issue is that this type of process while in good faith appears good but inherently can lead to oversights and mistakes. What are the review procedures in place? How detailed of a review is being done and documented?

I review submittals by small groups like this where it appears to be some one man show and a contract employee maybe and the mistakes are down right sad. When I point them out I get the response we’ve always done it this way. Point being is saying you reviewed the work vs reviewing it is two different things that should not be confused.

Does the review rip it apart, check the references, check that the methodology is logical and verify all calculations are correct?

It’s more the legal liability in the end that if it ever happens there will be an open door for attack.

 

[IRstuff]

The contractor has to have some semblance of autonomy to be considered an non-employee. Not sure if "responsible charge" allows for the level of autonomy that qualifies a contractor as a non-employee.

 

[phamENG]

To be a contractor vs an employee, the contractor has to have control of their resources and time. The contract can stipulate that the contractor be available at certain times for synchronized communication and set deadlines for deliverables, but everything in between is up to the contractor. The contractor is also, typically, responsible for their own tools, computer, software, etc.

But acceptance of the final product is up to the contract holder subject to the limits in the contract. So if I hire a contract engineer to design something or part of something, it's up to me to ensure my contract indicates that all engineering decisions are subject to review because I am in responsible charge. The details from there are just contract negotiations - if lump sum, how much back and forth is allowed until they get extra? Who decides who made the mistake that caused the revision? Etc.

 

[gte447f]

Only if you are listed in the insurance, I have had this discussion with my insurance already.

I actually checked my own PL policy before commenting on this matter, and my policy includes temporary workers among the "named insured". It should be noted that there are no actual names required to be listed other than the entity name (e.g., company name) as the "named insured". People often think that the policy has to list "John Smith, P.E." or whatever, but that is not the case. The definition of the "named insured" is typically defined within the document to include, owners, directors, officers, employees,... blah, blah, blah,... including individuals working temporarily on behalf of and under the supervision of the "named insured". Other policies may be different, but all of the PL policies I have actually read are like this.

To be an independent contractor you must make fit a certain criteria, if you don’t meet those criteria you are an employee so I question if you could be an independent contractors and have a supervisor, wouldn’t that make them an employee legally?

I don't think any of this matters with regard to supervising or responsible charge with respect to engineering licensing laws. W-2 employee vs 1099 contractor is an IRS tax issue, and, in general, it has nothing to do with determining whether or not an engineer exercises responsible charge. Again, state rules may vary, but in general, an engineer of record can exercise responsible charge over an employee or a 1099 contractor, or an unpaid intern or a volunteer or his 10 year old grandson for that matter.

As a professional should you not be the one stamping the document and standing behind your work?

The EOR stamps and stands behind the work. There are innumerable examples of licensed engineers working under the supervision of another licensed engineer who is the EOR and is in responsible charge. This happens everyday in engineering offices everywhere.

Is the business registered as a sole proprietor or a PC, PLLC? Does the business have a certificate of authorization if required?

These questions could be asked of any engineer and/or business. They don't seem especially or particularly applicable to the scenario presented by the OP.

The issue is that this type of process while in good faith appears good but inherently can lead to oversights and mistakes. What are the review procedures in place? How detailed of a review is being done and documented?

I review submittals by small groups like this where it appears to be some one man show and a contract employee maybe and the mistakes are down right sad. When I point them out I get the response we’ve always done it this way. Point being is saying you reviewed the work vs reviewing it is two different things that should not be confused.

Does the review rip it apart, check the references, check that the methodology is logical and verify all calculations are correct?

Again, these questions and critiques are equally applicable to any engineering supervisory/QA process and are not particularly or especially unique to the scenario presented by the OP. One man shops and small groups are not inherently nefarious and incompetent and large organizations are not guaranteed to be more competent or less susceptible to mistakes.