Business model that pays people who contribute to it - Questions!

[don3dm]

Hi everyone! Newbie here!

I co-own and manage a business that is looking to expand to a new market. We are an LLC in California, dealing exclusively with online / digital content. One of our new business strategies would work (very simply described) as follows:


3rd party, non-employees from all over the world would contribute to a website's content
As a "reward" for their contributions - Every month, the top 10 contributors according to a "score" would be paid.
Contributors would compete with each other to get in the top 10 spots, so that they too could get paid.

My questions:


Regarding taxes and expenses, what sort of documentation will I need to keep tabs on from the contributors?
Considering they are coming from all over the world, a standard W2 wouldn't work. Would I need to have W8-Ben's on everyone? Would it matter? Could I just count their "winnings" as flat expenses, or would they need to all be treated as "employees"?
What sort of red flags with this sort of business come to mind? (The technical side isn't the issue for us - it's the specific legality of having potentially 100+ people to have paid throughout the year as contributors from all over the world.)
We obviously want to make sure our "ducks are in a row" for something like this before we invest too heavily into the tech. We already manage a dozen or so contributors in a given year, but we've never done this sort of concept or volume before. Any information or questions anyone has I am all ears and happy to clarify!

Thank you!


-Don

[Harold Mansfield]

I don't know much about paying people internationally, however the IRS has all of that information on their website:
Tax Information For International Businesses (http://www.irs.gov/Businesses/International-Businesses)

Probably be a good place to start.

[vangogh]

What you're describing isn't an employer/employee relationship, which you acknowledge. You're asking people to submit content for free and then award some people a monetary reward based on a points system. That's running a contest with a monetary reward. I think that's where you would need to look as far as tax information is concerned.

However, I doubt this will be a winning business model. The best content creators aren't going to spend time contributing in the hopes of payment. You're highly likely to end up with a lot of low quality content that no one is going to be interested. The person who can create the kind of content you want can either sell that content directly to a site or build their own business around the content they create. I doubt people are going to put a lot of effort into creating the best content they can in the name of competition and reward. I suspect you'll end up with most garbage content with a small percentage being ok.

[Harold Mansfield]

I doubt people are going to put a lot of effort into creating the best content they can in the name of competition and reward. I suspect you'll end up with most garbage content with a small percentage being ok.

I have to agree with that. Creating content for points to possibly get paid is not any kind of great incentive that will attract quality content.

[vangogh]

Yeah, it's not anything that hasn't been done before. Other than what I post, the content here is user generated. Imagine if I started offering monetary rewards for posts. I would expect to see a greater quantity of posts and it's possible some people would put more effort into creating higher quality posts. The majority though would just be people posting more often in the hopes something sticks. The average quality of the content here would decrease even if you think the upper limit of quality goes up a little.

This kind of business model is mainly about offloading the work of content creation. Creating content is hard. It's one of the most challenging aspects of running a website. There are no shortcuts though when it comes to creating quality content.

[don3dm]

Hey guys

Thanks for the insight and opinions. There is a lot more depth involved with the specifics of the content that goes beyond just creating content that I don't want to share beyond my very primitive description. Believe me - I fully understand that incentives need to be in place in order to garnish quality. A "possible" carrot to contributors is definitely not enough to wager on the success of a business strategy. Our business would already revolve around the bulk of high quality content being developed in-house - with a system designed to encourage people to help or contribute - but NOT as the sole focus of how the business generates it's content or income. To say "creating content for points" was the most primitive and simple description I'd care to share. There's a whole lot more than that ;)

Back to the original question - I'm definitely still interested if anyone has experience with bulk overseas payments and tax requirements from within the U.S. or experience with how to manage / claim bulk payments to overseas contributors.

Thanks guys!

[vangogh]

Yeah, definitely don't let us talk you out of this. If you think this can work that matters a lot more than either of our opinions. I have a hard time seeing how you'll get people to deliver quality content, but like you said I don't know all your plans.

I do think this would be contest though and I think that means it will be a different tax scenario than you might be thinking. I did a little searching, but I'm not finding much. I did come across this answer on Quora (http://www.quora.com/What-legal-issues-come-up-when-running-a-contest-or-giveaway). Just click away from the login. The answer in question is the first one, which you can see. It has some good information about contests. Here's the last point


You'll need to report the prize to the IRS as income to the winner on Form 1099-MISC. Here's a page on the IRS site (http://www.irs.gov/uac/Form-1099-MISC,-Miscellaneous-Income-) which links to both form and instructions. The instructions mention a box on the form is for foreign taxes, though of course it's one of the few things not actually described in the instructions.

I found some information on Intuit's site (https://ttlc.intuit.com/questions/1900978-form-1099-misc-miscellaneous-income) and it specifically mentions the form can be used for prizes. It's basically a generic form for miscellaneous payments. How much tax you would pay isn't something I've been able to find. I'd suggest giving the IRS a call. They're much more helpful than most people think. If not then an accountant or lawyer would be good to call. I'm not sure how many people here will know unless they've been in a similar situation.

As far as payments are concerned it probably depends on the country. For example PayPal is easy, but I don't think it's available everywhere. The few sites I've been a member of that pay internationally usually offer several different methods for payment. They typically have a system set up where members can see an account balance in their profile and they have several options for withdrawing the money.