Temporary Employment Contracted Consultant - Employee vs Independent Contractor

samsam

We are in the process of contracting a temporary computer deconversion consultant in Sept. 2002. The conversion will be complete on or before February 2003. Company location is Oklahoma. My questions are; In order for this person to be considered an employee, what requirements must be met? (Federal, State, FICA, FUTA, SUI, Workmens Compensation, medical & retirement benefits). This person will be located in Michigan and never be on our property. Is Workmens Comp. an issue? Should this person receive a 1099 or W2 in year 2002 for part of the project or in 2003, when the project is complete, or both? Should a seperate employment contract be written along with the job contract? What verbage should be specified in a temporary employment contract for a consultant to comply with being classified as an employee? Can benefits, that have been agreed upon by both parties, be modified for a temporary vs permanent employee?

Thanks for your assistance.

Samsam

Don D

[font size="1" color="#FF0000"]LAST EDITED ON 08-27-02 AT 02:32PM (CST)[/font][p]Don't make him an employee at all. He's an Independent Contractor. All the insurance and money owed the government are his own obligation. No benefits whatsoever. In exchange for your contractual payments, he has no benefits and pays his own insurance and pays the feds what is owed. You'd 1099 him.

NaeNae55

How does your contract read with this consultant? Will he/she be under the direction of someone at your company? If the contract is clear about his being a "contract" laborer and no one will be directing his/her work, then get a W9 from the consultant before work begins. The W9 will relieve you of backup withholding and allow you to issue the consultant a 1099M at year end for all fees.

If the consultant will qualify as a temporary employee (the IRS is strict about this) then you will need to handle as you do any other employee.

Good luck!

Don D

I can't think of a scenario where a time-limited, off-site "computer deconversion consultant" would be anything other than an independent contractor. If he's in that line of work and holds himself as as a troubleshooter offering those services, he knows the drill and understands he will be independent.

samsam

Thank you for your response, do you have any guidance on verbage for a Temporary Employment Contract to adhere specifically to IRS regs? Can the State tax be applied in Oklahoma as an employee instead of the state of his residence, where he will be consulting from?

Thanks again!!!!

Don D

You will probably want an attorney's advice as far as the construction of the contract. If you have counterparts in your community that you interract with, ask them to send over a copy of one they used with names blacked-out. The contract will specifically state the he is totally responsible for any and all taxes, personal insurance, tools, methods, and work materials and that you have absolutely no obligation for such things as unemployment insurance coverage and that he is in no wise an employee of the company, but will be paid an agreed upon amount of x payable weekly following receipt of invoice from him. Certainly with a clearly stated work product that you expect by x date. Your company attorney will be willing to fax you a sample for a few (?) bucks.

NaeNae55

Sorry I don't have any specific verbage. But, as it happens, the August 21, 2002 issue of the Payroll Manager's Letter addressed the problem of employees versus contract workers.

The article said, "For example, if your company trains a worker, sets the worker's work schedule, and requires the work to be done on your company's premises, these factors tend to indicate that the individual is an employee of your company. On the other hand, if the worker pays his or her own assistants, also performs work for other companies, and is paid by the job, the worker may be an independent contractor."

The article referred to a list of 24 factors in determining proper classification (on page 5 of the same issue). You might try to get yourself a copy of this issue.

My husband is a programmer and found himself in both positions during the Y2K uproar. Hopefully, your programmer will work on his own without any direct supervision, with an agreement to do a specific job by a specific time all on his/her own, and therefore be considered an independent contractor.

As far as state taxes go, you'll have to do some research there. It depends on each state's laws and if they have a reciprical agreement. With any luck, it won't be an issue as you'll just have to get a W9 and issue a 1099M (both to the feds and your state).

Good luck!