IRS Says Virtual Greeters Are Real Employees

by Alphaville Herald on 12/05/08 at 9:42 am

Electric Sheep Company VP Giff Constable confirms IRS ruling

by Pixeleen Mistral, National Affairs desk

Misty and Maia are employees – not contractors

This weekend, the Second Life Herald learned that the Internal Revenue Serivce has ruled the greeters employed by the Electric Sheep Company for the CSI:NY metaverse/television cross promotional event are ESC employees rather than contractors. The ruling is significant – it suggests a number of Second Life players-turned workers had their employment status misclassified over the last 6 months. By treating workers as contractors, ESC minimized its paperwork and avoided responsibility for federal tax withholding – as well as sidestepping the employer’s social security withholding contribution.

The CSI:NY hypervent was met with mixed success, but continues on a reduced scale providing work for a number of metaverse residents. I spoke with two greeters in-world sunday evening who confirmed that they were still treated as contractors between assisting confused new players:

Pixeleen Mistral: so… are you an employee of the Electric Sheep Company? or a contractor?
Misty Durant: Pixeleen, we are all contractors
Misty Durant: and that’s about all we are free to share with you
Pixeleen Mistral: the ESC says so, right? but what if the IRS says otherwise?

Pixeleen Mistral: a former employee raised the question with the IRS and got an answer yesterday
Pixeleen Mistral: you get paid via paypal, right?
Maia Dutton: nope
Misty Durant: No
Maia Dutton: direct deposit
Pixeleen Mistral: in US dollars?
Maia Dutton: yep
Pixeleen Mistral: and you work scheduled shifts here
Maia Dutton: pretty much
Pixeleen Mistral: well – I have a few links for you to take a look at
Pixeleen Mistral:
Pixeleen Mistral:
Pixeleen Mistral:
Pixeleen Mistral: ESC should be paying payroll taxes on what the pay you

Giff Constable – VP of Operations and Strategy of The Electric Sheep Company – confirmed the IRS ruling this morning, saying,

“The greeters whom ESC employed in Second Life have indeed been ruled as part-time employees by the IRS, so we will take appropriate steps. I actually think that this is an interesting precedent – that part-time workers in a virtual world, and using their own equipment, schedule, and judgment to perform tasks, have been ruled as employees.

In terms of scheduling, greeters were able to submit the times they wanted to work, and we worked out coverage accordingly.

And yes, appropriate steps will be taken regarding paperwork and payments. We’re fine with this clarification from the IRS; this is a really murky area in US law, and we just want to do the right thing. The economic consequences should not be significant.

As for CSI:NY, that project is winding down shortly as originally planned at the outset of the project.”

Now that the IRS has ruled that employees in Second Life are real world employees, should we expect to see babyfur avatars filling out W2 withholding forms?

27 Responses to “IRS Says Virtual Greeters Are Real Employees”

  1. Ciaran Laval

    May 12th, 2008

    The complication comes when you take payments outside of virtual worlds, which paying people directly into their bank accounts rather than in Linden dollars does. There are all sorts of implications when you use US dollars for transactions, the same goes for those accepting US dollars for payment of services via paypal, it’s a whole different kettle of fish to making payments inworld.

    Eventually I’d imagine inworld payments will be covered too, but that’s going to be a long winded and complicated process.

  2. Pie Psaltery

    May 12th, 2008

    And what if the Greeters ESC has contracted aren’t U.S. citizens? Can ESC tell the IRS to fuck off at that point?

    Would this be a good reason to never contract a U.S. citizen for a project within SL?

    Will people from other countries have to obtain work visas to make money from American based companies in SL since our government is so obsessed with squeezing drops of blood from stones?

  3. Aya Pelous

    May 12th, 2008

    Sucks when the government gets involved in something they barely know about. But i understand if you are getting paid by direct deposit to your own bank account that would make you a true employee. I am a greeter and I get paid in lindens. Its a small amount but never by bank account. Also, why would you want to work for a place in SL that involves your social security number?

  4. Ranma Tardis

    May 12th, 2008

    I do not think it matters where the residents are located. The EC has its VAT and the Americans have their Income Tax, FICA and Medicare Taxes. The servers are located within the United States. It matters not if a resident is a non American citizen located outside of America. The work site is thus located within the states.
    I think all of the residents should “enjoy” relations with the IRS. Welcome to the New “Brave New World”. Laughs until falling over……. This is too RICH!! Laugh, cackle, chuckle, etc………..

  5. Rip

    May 12th, 2008

    This is even worse news than the first article today! (Op/Ed: The Biggest Threat No One Is Talking About)…..This has the Potential to kill SLs or radically alter it. If the IRS ever finds out about all the camping money and other questionable money tranfers that appears to be going to (single player) zomibe accounts bypassing the tax system, they just might audit Lindens books. Now that would be a really big problem for LL and the SL economy im betting! Again lindens business model bites them in the back side! These folks may be great coders and world builders but businessmen their not.

  6. minimumWager

    May 12th, 2008

    So this means that SL employers are going to have to pay minimum wage to its workers within SL now… that’s what? about 2500 linden/hour??? NOW THATS CAMPING BABY :)

  7. Bryan

    May 12th, 2008

    Uhhh… They work out of a home. That makes them contractors. If they went to some sort of ESC basement sweat shop every day to do their work, you’d be right. I own a web mag and pay writers all the time. Researched this well.

  8. SB

    May 12th, 2008

    Actually, you spoke to 2 Managers *looks at tags on the pic*.. totally different pay scale between Managers & Greeters. ;)

  9. JayR Cela

    May 12th, 2008

    This is just horse crap, if you cash out your lindens, and receive a check in the mail, of via whatever means. Then yes after a certain amount. You as an individual are responsible to pay taxes.
    Nothing more, nothing less

    JayR Cela

  10. Tenshi Vielle

    May 12th, 2008

    SWEET! Minimum wage!!

  11. Cinquetti

    May 12th, 2008

    Wanna be a greeter? Just fill out a 1099…employer then only reports how much the greeter made and greeter is responsible for taxes due.

  12. Steven

    May 12th, 2008

    This is an interesting development, although the outcome is not too surprising.

    While the employee/contractor distinction can get murky at times, its my educated guess that the IRS is correct in the ruling. Without going into details, I would think that a greeter in the real world would be considered an employee so I don’t see why a special case should be made for an online greeter.

    Second, as far as virtual world activities are concerned, I would think it is a lot easier to collect withholding taxes from the employer as opposed to collecting tax from the recipient. The recipient would bring up a lot of stink if the IRS were to try to collect from the greeters (“Well, I was only playing for fun!” or “I’m not cashing the Lindens out!”, etc., etc.) while the employer isn’t likely to complain because he or she is clearly paying the greeter for their services.

  13. Marc Woebegone

    May 13th, 2008

    Another fantastic outcome! Good, now start meeting your legal obligations and begin taking the proper withholdings and meeting the reporting requirements. Ha!


  14. Aya Pelous

    May 13th, 2008

    oh I guess I’ll start a union for dancers and greeters

  15. Overcast

    May 13th, 2008

    “Sucks when the government gets involved in something they barely know about.”

    If it’s not lying, cheating, or stealing – that’s pretty much everything else.

  16. Maria

    May 13th, 2008

    It is an extremely grey area of the law. The determination of whether an individual is an employee or independent contractor is made on a case-by-case basis and by looking at a number of factors regarding the relationship in question. Simply labeling the relationship as a contractor relationship is not enough. Anyone with a question as to how it may apply to their particular business situation should consult with a qualified tax attorney.

    The IRS is always pushing towards classifying as many people as possible as employees. This is not necessarily a good thing, as it drives up operating costs and may likely result in discrimation against those in the US as greeter jobs are transferred to those countries outside of the reach of the IRS.

  17. Plot Tracer

    May 13th, 2008

    If someone is contracted to sit at a computer terminal to do work, they are bound by the employment laws of the country in which they are working. If a telephonist is in Mumbai, but servicing Dell accounts/ talking to Dell customers in the US, they work under the employment laws of India.

    If someone volunteers to be a concierge on a friends sim and gets a few lindens for it, that is their perogative. If you are working for a rl company – eg. CNN/ Reuters/ BBC etc on SL – it should be part of your working day as an existing employee of those companies – under the law of the country you are based in. If you have been approached within SL to work for a RL company, you need to have a contract. If you agree to be a researcher for a compnay in SL, your cnotract should be negotiated. If it is a wage they are giving, they must give you at least the minumum wage of the country you are employed in. If it is a job on a freinds sim… then you negotiate a rate, or volunteer.

    Anyone with difficulties regarding emploment should contact SL Union Island ( )if they don’t know what real life union to contact. Unions will give you advice – free if you join – a solicitor/lawyer will give you advice if you pay her/him an extortionate amount of money.

  18. Alazarin

    May 13th, 2008

    That’s certainly going to kill off ‘working’ as a greeter or dancer in SL. They’ll all be replaced with bots.. no tax forms to fill out for your bots.. only an electricity bill.

  19. shockwave yareach

    May 13th, 2008

    Does this also mean that Escorts are now Real Hookers, and that furries in certain avatars are on the endangered species list?

  20. Rip

    May 13th, 2008

    Who in their right minds would want to have anything to do with those unionist / socialist / marxists on that silly slunionisland? “Workers of the World Unite” my b*tt! Advice from those wackos comes straigth out of Karl Marxs manifesto, can be hazardous to your wealth and your freedom!

  21. Flabbergasted

    May 13th, 2008

    Are you people serious? A camper makes like 2L/15 minutes, so in an hour 8L. In USD, that’s approx $.03. The IRS is going to tax that? I can understand it taxing people who make hundreds or thousands of dollars a month. But if you’re making miniscule RL amounts, the IRS has better things to do.

  22. Marc Woebegone

    May 14th, 2008

    Procedure Unveiled for Reporting Violations of the Tax Law, Making Reward Claims

    IR-2007-201, Dec. 19, 2007

    WASHINGTON — The Internal Revenue Service today outlined ways informants can report violations of the tax law and possibly claim a reward based on the amount of additional tax, penalties and interest that is owed.

    Let’s see, who to report first…..

    Warmest Regards,

    Marc Woebegone

  23. LAWL

    May 15th, 2008

    Hey, I’ll pay them their tax over three dollar cents. I’m a good boy. Does the IRS accept a cheque?

  24. Revolution

    May 15th, 2008

    @Marc Woebegone

    Weren’t you a landlord too?

    Use the IRS??? Hmm… Time to throw off the oppressive yoke of the landlords/land barons! Line them up against the wall! The revolution starts now.


  25. Plot Tracer

    May 15th, 2008


    Union Island is not a marxist group/place. It is a place to find out about unions/ link up with unions etc. It is ran by the very real TUC (definately not a Marxist organisation)

  26. Ewan Mureaux

    May 15th, 2008

    The IRS has no right to levy tax in this area. The IRS is illegal. The sixteenth ammendment was never ratified. The government can only tax you for capital gains. Exchanging your labour (labor) for money is not a capital gain.

    Educate yourselves people.

  27. Ava Cartier

    May 15th, 2008

    Ewan, with all due respect, don’t you think some of us are smart enough that we would have tried AND succeeded in using that argument? People have attempted and have served jail time for this cause.

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