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Employee vs. Independent Contractor
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Employee vs. Independent Contractor
Discuss workforce management, performance management, retention, communication, motivation, contributing to business results and other topics.
We are a consulting firm. We tend to use Independent Contractors (IC) more than employees because consultants prefer to have control over their schedules. Many have had great careers and are not ready
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Forums » Topic Forums » General Forum » Employee vs. Independent Contractor
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Employee vs. Independent Contractor
posted at 11/3/2009 4:29 AM EST
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Posts: 2
First: 11/3/2009 Last: 11/3/2009 |
We are a consulting firm. We tend to use Independent Contractors (IC) more than employees because consultants prefer to have control over their schedules. Many have had great careers and are not ready for retirement but would like to use their expertise to help other companies. My message is that I believe the State has made it very difficult to meet their criteria or definition of Independent Contractor. If you refer to their "test," it states that a company is not allowed to give direction, control their time, control "how" they perform their duties...and so forth. ARE YOU KIDDING ME? Who hires a contractor and then says "Do it when you like, how you like, and I am not allowed to supervise." I believe they need to take a better look at their definition and test. Anyone else have a problem with this? It doesn't matter that they get to work from home, they can turn down jobs if they want, that they have their own equipment--the State still feels they are Employees. Oh, and they HAVE to work for more than one company which may mean....your competitor???? |
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Employee vs. Independent Contractor
posted at 11/3/2009 4:39 AM EST
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Posts: 155
First: 8/24/2009 Last: 2/9/2010 |
Are you just venting or do you have a point? These rules have been in existence for many years so nothing is new here. Companies hiring IC's legitimately have been complying with these rules and have no problems. |
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Employee vs. Independent Contractor
posted at 11/3/2009 6:15 AM EST
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
Agree with HRPro that this issue has been around for a long time. One question I would hope you could answer is whether your company passed this decision by competent labor attorneys? If so, I don't know that there is much you can do to contradict their opinion.
I think there are a lot of companies that are flying under the radar with classifying ICs because no one has turned in a claim. I would argue that yes, there are times where it is valid, but there are more times where it is NOT valid. Are these ICs working on a specific project that has an end date? When the project ends are they free to work for themselves or someone else? I agree that the amount of control greatly diminishes with an IC. And a lot of employers don't understand it. In our case, I always urge caution and err on the side of them being employees. Maybe to my detriment, but I have yet to have a complaint filed against us. But you may be fighting a losing battle -- and a career limiting one, especially at that consulting firm if "this is the way we have always done it", etc. I would however put your concerns into writing and then let the powers that be make the decision. If they make a decision you do not like, then your choice is to accept it or leave. |
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Employee vs. Independent Contractor
posted at 11/3/2009 7:01 AM EST
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Posts: 2
First: 11/3/2009 Last: 11/3/2009 |
I appreciate both comments, and yes there was some venting. I don't know if this helps clarify my frustration but here goes: Case-in-point: A client of ours had an IC contracting with them. The IC was setup as a corporation. They paid the IC as a corporation. The IC did not want to work full time nor did the IC want specific hours because the IC was raising grandchildren and that was the priority. Great! Our client did not have a need for a full time or part time employee. The work would be sporadic and they could not guarantee how many hours,etc... An ideal situation for both parties. The IC worked pretty steady at their own pace, their own hours. The IC chose work they wanted and refused work they did not. Still a great relationship. The IC work was supervised because there is standard work to the work the company performs. Well, when the economy took a downturn, there was no work for the IC. The IC filed for unemployment as instructed by the IC accountant. The IC told the whole truth--that indeed was an IC and gave all the information for all previous work. Well the State went after our client for IC unemployment. They had a hearing. I was involved. All parties including IC stated indeed this person was an IC-- the truth was told by all. But due to the fact that the IC did not want to work for anyone else and did not advertise outside work and due to the fact that the IC was supervised, the State ruled the IC an employee. My feelings are that the IC test is too strict. Why should IC have to work for someone else if they do not want to? There has to be standard work--our clients count on it. The State does not allow for IC supervision. Why do they have to work for someone else? Why should their work not be supervised? Just my personal experience and opinion. |
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Employee vs. Independent Contractor
posted at 11/3/2009 7:33 AM EST
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Posts: 2442
First: 2/12/2000 Last: 9/14/2011 |
If you tell someone how and what and when to do the work(supervision) and they do no work for anyone else then you have an employer relationship.
In order to disprove this you have to show that the person is truly independent. Under the current rules this means that the "independent" person: 1. Can come and go as they please 2. Provides their own tools/computer 3. Solves the problems and challenges how they deem appropriate. 4. Charges you a fixed price for the whole service they will provide. etc. In other words all the things that an independent consultant would do if you hired them. Otherwise they are an employee. It has been this way under the law for a long time so I am surprised this is the first you have learned of it. There is a lot of case law here so don't waste a lot of your time bemoaning this outcome. |
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Employee vs. Independent Contractor
posted at 11/3/2009 7:47 AM EST
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
"My feelings are that the IC test is too strict. "
Well, as an HR/payroll/management professional, you need to put your feelings aside, because at this point it is not something you can change. One other note, a person can't sign away their right to be covered as an employee if in all reality they are working as an employee. Even if both sides agree to it. I am curious though why she filed for unemployment in the first place. Part of her contract should have stated that she wasn't eligible for benefits, etc. The government, IRS and others ARE going to resist ICs as much as they can because it is seen as a way for employers to not pay as much into the system -- that is the only real reason to classify someone as an IC is to get out of paying payroll taxes, unemployment taxes, workers compensation insurance, etc. The laws are written to protect the employee and generally employers working around those laws by using ICs must be VERY careful to do so in a lawful manner. |
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Employee vs. Independent Contractor
posted at 11/3/2009 8:44 AM EST
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Posts: 1771
First: 10/24/2002 Last: 9/14/2011 |
Just because you think these laws are too strict doesn't mean that you won't be penalized when you break them. Venting on these forums or anywhere else isn't going to change the laws to suit you. If you disagree with these laws you need to either:
1. Be prepared to pay the penalties imposed when you break them, or 2. Speak to your congressperson about getting the laws changed. These are your only options. |
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Employee vs. Independent Contractor
posted at 11/4/2009 3:21 AM EST
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Posts: 237
First: 7/10/2007 Last: 8/31/2011 |
When did the former 11 point test for independent contractors become the current 20 point test? It does seem that in their zeal to catch employers who abuse IC classification the government has not considered the impact of their rules on companies (no real surprise there).
Im looking at having to go through the time and expense of the full hiring process for scores of people who may work for us one day, but dont meet the IC definition. The only alternative I see is to payroll them through an agency and pay the markup. |
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Employee vs. Independent Contractor
posted at 11/4/2009 4:13 AM EST
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
From an IRS standpoint, my source shows the 20->11 happening in 2006 and refers to IRS Publication 15A in that year.
However,the following is for state unemployment purposes: Texas adopted the 20 point test in 1998. 2/3rds of other states use the 3 point test and some only require 2 of 3 to be met: (1) The worker is free from control or direction in the performance of the work. (2) The work is done outside the usual course of the company's business and is done off the premises of the business. (3) The worker is customarily engaged in an independent trade, occupation, profession, or business. So you need to be careful not only on a federal/IRS level, but also on a state tax level. |
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Employee vs. Independent Contractor
posted at 11/4/2009 4:29 AM EST
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Posts: 155
First: 8/24/2009 Last: 2/9/2010 |
rrupert shared:
(1) The worker is free from control or direction in the performance of the work. (2) The work is done outside the usual course of the company's business and is done off the premises of the business. (3) The worker is customarily engaged in an independent trade, occupation, profession, or business. Those were and remain pretty good criteria. Of course manipulative people twisted those points into something entirely different. This resulted in substantial abuses on the part of individuals and employers. So the 20 point rule was developed and simplified things. These IRS modifications are good examples of something the government got right. (It would be nice if everything else the government did was that right but alas...) |
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