1998 Lane Reports

Sidestep The Risk Of Independent Contractors Who Aren't

Monday, March 2, 1998
by Marc J. Lane

Considering he's the richest man in the country, not all has been going Bill Gates' way. The Justice Department is after him on Antitrust grounds; he recently took a pie in the face; and his senior managers at Microsoft Corp. learned that workers can be company employees even after they sign agreements that they're independent contractors.

Whatever the parties believe or contract, the IRS has the final word about whether or not a worker is really an employee - and whether his or her boss can be saddled with all kinds of penalties for violating federal law. What's more, the employer might well face a slew of new and unexpected costs - FICA, unemployment insurance, workers' compensation, overtime pay and employee benefit plan contributions among them. The IRS decides who is an employee and who isn't by reference to a 20-factor test, but it all really boils down to control. If the company has the right not only to decide what job is to be done, but exactly how it is to be done, the worker is probably an employee and enjoys all the rights of employment.

Here are a few pointers to keep in mind as you try to stay on the safe side of any controversy:

  1. Insist that your independent contractor invoice you for services rendered. Billing is a clear indicator of self-employment.

  2. Stay away from words connoting employment. Your contractor should be "retained," not hired; and he or she should be paid a "fee," not a "salary" or "wage".

  3. Make sure your contract denies the worker any and all benefits, including health insurance.

  4. And, finally, shift some entrepreneurial risk to the worker, who should pay all job-related expenses. As any self-employed person would, he or she should then build those costs into the fee your company is charged.

Follow the rules and, in at least this one small way, you'll have a better year than Bill Gates is having.

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The Lane Report is a publication of The Law Offices of Marc J. Lane, a Professional Corporation. We attempt to highlight and discuss areas of general interest that may result in planning opportunities. Nothing contained in The Lane Report should be construed as legal advice or a legal opinion. Consultation with a professional is recommended before implementing any of the ideas discussed herein. Copyright, 2003 by The Law Offices of Marc J. Lane, A Professional Corporation. Reproduction, in whole or in part, is forbidden without prior written permission.

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