Are Long-Term Contractors Risky?

Q: Right now our staff consists of several employees and a large number of independent contractors. I read about Microsoft's legal troubles with its independent contractors. Are we at risk if we use long-term independent contractors? 

A: Potentially. Proper use and management of independent contractors is a big issue for small bsousinesses. Simply because you and your company consider these workers independent contractors doesn't mean the government will. If they're later deemed to be misclassified employees, your company could be liable for unpaid employment taxes and insurance (and other penalties). You could also be liable to the workers themselves for the value of any benefits provided to your full-time employees but not to them.Below are a number of the factors the IRS uses to determine whether an employer has correctly classified its workers:

• Employer control. If a worker must follow an employer's instructions regarding when, where and how to perform the work, this suggests an employer-employee relationship. This is the biggest single factor in the determination.
  
• Hours of Work. Set hours of work suggests the individual is an employee.
  
• Full-Time. Working full-time or substantially full-time for one employer suggests an employer-employee relationship.
  
• Employer's Premises. Work performed substantially or exclusively on company premises suggests the individual is an employee.
  
• Payment by Hour, Week or Month. Payment on a regular schedule suggests the worker is an employee. Independent contractors are usually (but not always) paid by the job.
  
• Training. Any direct training provided by the employer suggests the individual is an employee.
  
• Assistants. If the worker hires and supervises her own assistants, this suggests that person is running an independent business and is not an employee.
  
• Profit or Loss. If the worker has no real exposure to profit or loss, beyond that of an ordinary employee, this also suggests an employment relationship.

These are not rigid rules, but factual considerations that cumulatively determine whether a worker is an employee or independent contractor. Another hidden issue is that if your contractors are really employees, they are entitled to all the same anti-discrimination protections of your regular workers. That's because these civil rights laws are all premised on an employer-employee relationship.

 

[Source: AllBusiness.com]