Contractor or Employee

HRrosey · September 2007

I apologize for the length of this post.

We have 13 full time staff. We also use a team of contractors (11) we describe as Senior Associates. These associates are not considered employees but contractors. We issue 1099's at the end of the year to each of them. We have no letter of agreement or understanding signed by any of them but one.

I keep bringing this to the attention of our President and Executive Vice President that we are risking some liability by operating with out signed agreements.

Actually our policy states they work under contract - Consultant
*** utilizes consultants in order to draw on the expertise of its national network. A consultant conducts work for *** under contract. The contract specifies the scope of work, the duration, the deliverables, and the compensation. Consultants may work on-site at the *** office, or they may be based at another institution. Consultants should not begin work until both the Consultant and the designated *** employee have signed two originals of the contract.

I keep bringing this to the attention of our President and Executive Vice President that we are risking some liability by operating with out signed agreements. Yet, they haven't moved forward on instituting the policy.

We are now going to provide each of these contractors with our business cards which will have their contact information on them as well as our company information. I am making the point to my company taht provide consultants with our business cards could make the line between contractor and employee even murkier and could put us at risk of IRS determining these folks as employees creating a liability of pay back payroll taxes etc.

I am I worrying for nothing or should I continue to hold my ground on this??

SMace · September 2007

Signed or not, the real issue lies as to whether they are really contractors. If they are not, a signature ain't gonna matter squat. Go to this link, read it very carefully and present it to your Pres and EVP.

[url]http://www.irs.gov/businesses/small/article/0,,id=99921,00.html[/url]

I still think you need signed agreements, but make sure they are really contractors first. You don't screw around with IRS rules. They will make you pay in more ways than one.

System · September 2007

[font size="1" color="#FF0000"]LAST EDITED ON 09-12-07 AT 03:26PM (CST)[/font][br][br]In addition to IRS issues, an employer who misclassifies employees can be on the hook for state taxes, workers' compensation insurance, unemployment insurance, failure to pay overtime or minimum wage, etc. But, like SMace says, whether these senior associates will be considered employees or independent contractors by the IRS or the Department of Labor or the Connecticut Employment Security Division, etc. is not going to depend on the existence or nonexistence of any contract. It will be determined based on the type of work the senior associates do and how that work relates to your business. This determination is fact-specific, and will depend on the specific circumstances surrounding the arrangement you have with the senior associates and other workers. In other words, if the arrangement between the company and the senior associates constitutes an employment relationship under the IRS standards or Connecticut statute, the fact that an employee has signed an agreement that states he or she is an independent contractor will be entirely meaningless.

An attorney who specializes in labor and employment law in your area will be able to evaluate the work arrangements your organization has with your senior associates and determine whether you have properly classified them as independent contractors.

HRrosey · September 2007

Thanks for the input on this. It's all very helpful. Here's another question: if you use independent contractors do you require them to carry liability insurance?

NaeNae55 · September 2007

We rarely use independent contractors, but when we do we require them to have all appropriate licensing and insurance. The particular work they are doing for you determines what licenses or insurance may be required. If they are truly independent, then they are working for themselves (or another company) and need adequate coverage (work comp, liability, etc) to protect themselves and their clients (you).

Good luck!

Nae

System · September 2007

More than 3/4 of my work force is independent contractors. I require them to carry Liability as well as Workmen's Compensation Insurance. In the state of Illinois the rules are pretty strict and we have decided there can be no shaded areas it must be cut and dry. If you are interested I consult an attorney via a phone service in Chicago who specializes in Independent Contractor law. Let me know and I will pass along her information. Her rates are very reasonable but the security she provides us is top notch.

NeedCoffee · September 2007

As other posters have stated, it depends on the type of work you are having the contractors perform. We require ours to carry liability insurance and w/c insurance, and we have them sign a hold harmless agreement.

Dutch2 · September 2007

We ran head frist into this a few years back. We had to identify to our workers comp provider a list of every independent contractor that worked for us the previous year. If they could not provide proof that had liability insurance we had to pay just under 10% of what we had paid the contractors to add them to our insurance. This included everyone from the lock smith, HVAC guys, to the cleaning crews and lawn care. Even the high school kid we were paying to mow the grass at one of our smaller facilities. This turned out to a tiddy sum fo money. We now require every independent contractor to supply us with a copy of their liability insurance and if they don't have any we automatically add 10% to their estimate when considering their bid.

HRrosey · September 2007

Thank you very much. These posts have been very helpful. Parothead - I'd appreciate the lawyers name in Chicago. Thanks again.

HRrosey · September 2007

By the way, we scratched the business card idea.

Contractor or Employee

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