I hear a lot of buzz from frustrated 1099 independent contractors about how they are sick and tired of being told how to do their job, what tools to use as well as when and how to report results; they believe because they are not earning benefits, are not an ’employee’ of the company that no one has the right to “tell them what to do”. I find this interesting because at the same time I am hearing the complaints from the field, I am eliciting similar yet different feedback and concerns on the side of the companies using independent contract recruiters in the bay area.
Many companies have told me they need to use the services of three to five, or more 1099 contract recruiters to find one that produces high quality candidates in the desired time frame.
These companies tell me they install measures and accountability structures because without a system in place they feel like they are throwing their recruitment budget down the drain.
The way my colleague Diana Maier, Labor Attorney sees it both parties have a right to their opinions however companies MUST take note of their 1099 practices and if they are unwilling to give up control they need to seek an alternative solution; for example KeenHire’s Recruitment Process In Souring model where every consultant is our employee, and we are accountable for managing the results. The customer still saves on insurance and other “employee” related costs, however they do not have to worry about the impact of an IRS violation. For detailed information on 1099 versus Employee – read on!
One of the biggest challenges facing employers today is something that most people know nothing about. Specifically, is the person who provides you a service at work or in the home a contractor or an employee? That is, do you need to take responsibility for the person, file taxes, get worker’s compensation insurance, withhold earnings, etc, for her, or do you simply pay her what she charges and move on? So often people do the latter when they should be doing the former. The government, of course, knows this and profits heartily from it. As an employment attorney I see so many small or budding businesses ruined over this mistake.
So what can you do about it? A few things. First, educate yourself on the differences. If someone has a specialized skill over which you exert very little control (for most people a good example would be a carpenter, a computer guru, an accountant, etc.) they are likely a contractor. Consider whether this individual works in a specialized field that is not your area of expertise. If he does, it becomes difficult to exercise control over how he does his job. Since most state and federal agencies hold that the payer’s ability to control the work done for him is the single biggest factor in determining whether someone is a contractor or an employee, answering the above question allows you to discern a contractor from an employee.
Another factor to consider is whether the person’s expertise is something that operates as a support to your home or office, or entirely independent of your home or office. For example, the person who comes to paint your law office is performing a duty totally unrelated to your area of expertise, supporting contractor status. While you might be able to pick up a paintbrush and help (i.e. the work is arguably not as skilled as a computer guru), you most likely could not effectively micromanage the painting project. Contrast this with the person who comes in to offer secretarial support in your law office. The secretary’s work is an integral part of your operations and also something over which you can exert a large amount of control. The average lawyer, for example, often proofs the work of her secretary and might make all kinds of changes to it. These kinds of actions show an employer-employee relationship.
How you pay someone, whether by the job or by the hour, is another crucial difference between contractors and employees. Using the above example, you are paying a secretary for his time (supporting employee status), while you are paying a painter for his completed work (supporting contactor status). In addition, the longer the relationship between payer and payee, the more likely courts or administrative agencies are to find employee status.
Finally, consider whether your service provider has many clients or just a few. If the person works just for you, she is more likely to be your employee. If she has many clients and holds herself out as a business, she is likely a contractor. If, for example, your housekeeper comes to your house 4 days a week, you pay her hourly, and she has very few clients, she is likely an employee. If she holds herself out as a business, advertises, solicits new clients, and works for many people, she is likely a contractor.
What else can you to avoid being penalized for misclassifying a service provider?
-Draw up a document that supports contractor status if that’s the way you choose to go.
-Keep a vendor file indicating contractor status (include ads place by the contractor, proof of her insurance, and other indicia of the individual holding herself out as a business)
-Consider asking for an advisory opinion from the Labor Commissioner or another administrative agency. Be aware, however, that the government errs on the side of finding employer-employee status 9/10 times
-Play it safe and treat everyone who provides you a service as an employee. While you’ll pay more at the outset, you can calculate and pay a fixed and knowable cost rather than subject yourself to untold but always heavy-duty penalties.
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