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Subject:Employee or Contractor? (long post) From:Bonni_Graham_at_Enfin-SD -at- PROTEON -dot- COM Date:Mon, 7 Feb 1994 11:47:00 EST
Text item: Text_1
Well, I couldn't find my handwritten list of points. I'l probably
discover someday in my dotage while I'm sitting on the porch, sucking
my gums and leafing through a yellowed photograph album. SIGH.
Anyway, I found something better -- form SS-8 (rev. 1985, and not
since, I believe), the fomr employers send in to ask the IRS to
determine if an employee is a contractor or employee. I think they
get this when audited, too.
One thing to bear in mind is that, with a couple of exceptions noted,
the employer must be violating MORE THAN ONE of these items.
Anyway, since it's what my list was based on, I present an adapted and
annotated version of the form:
1) What is the firm's business and the worker's job description?
Obviously if the firm's business involved something like sales on
the premises, and the employee's responsibilities involve dealing with
these customers, the employee is probably not a contractor. The IRS
is trying to determine if the job can realistically be performed by a
contractor. On the other hand, if all the other qualifications check
out, you might still be a contractor.
2) Describe (by providing a contract or in a written transcription of
the verbal contract) the work agreement. If there are any differences
between the contract and reality, explain.
If the contract says you're a contractor, you probably are. But if
the contract says you're a contractor and the situation in reality
DOESN'T meet any of the other qualifications, you probably aren't.
3) Are you being _given_ training or instructions? Describe and
attach sample instructions. Can the employer change your methods?
Does the employer's business require that you be supervised closely?
If the co. is paying to send you to a class and it's not
specifically mentioned in the contract as being part of your fee,
you're possibly not a contractor. If the employer is specifying your
working instructions too closely (beyond, say, requiring a particular
set of software and style guide) you're probably not a contractor. If
the employer is watching you, you're probably not a contractor.
** They're fairly picky about this one -- this one can be the only
violation of the list and be enough to have the IRS consider you an
employee, not a contractor.
4) Are you working indefinitely or on term? Are you required to work
on a schedule (usually daily, like specific hours). Do you report to
the employer? How regularly? Why? How? Attach copies of reports.
Do you furnish a time record? Attach example.
If you're working indefinitely (i.e., an open-ended contract, rather
than a constantly renewed one) If they're strictly controlling your
reporting and work habits, you're probably not a contractor.
** Like Number 3, this requirement can stand alone as sufficient
5) List what tools, supplies, and materials the employer provides vs.
what you provide. List what expenses get reimbursed.
The idea here is that if they're giving you equipment and it's not
stated as part of your fee in the contract, you're probably not a
contractor. If they're reimbursing you for travel, phone, etc.,
you're probably not a contractor. In general, contractors build these
costs into their fees.
6) Are you doing it yourself or subcontracting? If you're
subcontracting or farming it out to your employees, who pays the
income and Social Security taxes?
If the original employer (yours) pays for your employees' tax
witholdings, you're probably not a contractor. If you're assigning
the work to employees or subcontractors and the original employer is
not involved, you're probably a contractor.
** This is another one that can stand alone as a violation.
7) Where do you do the work (home, on-site, etc.)?
If you're onsite, the IRS sees grey, and they don't like to. However,
if this is the only "violation", you and your employer/client are
probably ok. BUT this is one they're planning to crack down on more,
especially if you're on-site using your employer's equipment.
8) Do you get an agreed-upon minimum amount? Can you draw against
your potential pay?
I'm not as clear on this one. I think that if you get paid for work
you have not yet completed, you begin to fall into a grey area.
9) Do you get benfits? Does the employer pay your witholding (not
generate a 1099, but actually PAY your tax witholding)? Does the
employer bond you?
This is a biggie. If either answer is yes, you are an employee, not a
contractor, in most cases. I think Intel does it differently, but I'm
not sure how they justify it. Obviously they care a lot less about
the benefits than the witholding status.
10) How many hours a day do you do this? Do you contract for other
people, too? Any non-competition agreements?
If you work 8 hours a day, you enter a grey area, depending on what
other conditions apply (closely monitored schedule, on- vs. off-site,
etc.) If you contract for other people, the grey area clears up a
lot. If you signed a non-competition agreement, it clouds up again.
11) Can either party terminate the contract with no penalties?
If yes, you're probably a contractor (and you probably should have
worded your contract better -- always try to get at least partical
payment if you're terminated). This question carries a "if not,
explain" clause where you can mention what termination liability
exists, which can put you back on the right side of contracting and
still allow you to answer No to this question.
12) How do you represent yourself?
If you have a business listing in the Yellow Pages, or say to the
public that youcontract and are available for same, etc. you're a
contractor. If you or the company represent you as an employee, you
enter a grey area. It's grey because this requirement, I believe, has
to be violated in conjunction with others before it becomes a problem.
13) Do you need a license? What kind? Who issues it?
If you have to have a license, you're probably a contractor. BUT,
since a lot of services that do not require a license are contracted,
you may still be a contractor, even if you don't. If the employer
licenses you, it's another grey area.
14 & 15) Do you have money at stake in the business performing the
services (i.e., you)?
If you may take a loss on the contract, and have invested in your own
business (i.e., bought equipment, borne travel expenses that will not
be reimbursed but are part of the fee, etc.) you're a contractor. If
you probably won't take a loss, but it's because of the way you worded
your contract, you can still answer yes to this question, because, for
example, the employing co. may go out of business.
16) Has there been any government ruling on this cotnract or that of
other workers with this co.?
If yes, and the ruling says you're a contractor, you're a contractor.
If no, the other requirements are in force.
17) Do you assmble a product at home? Who supplies the supplies?
This really doesn't apply to our kind of contracting, but if the
answer is yes, but the co. provides materials and instructions, it's a
18-20) These questions have to do with direct contact with the
customers of the employer, like for salse, and mostly do not apply, so
I'm not going to discuss them.
I hope that helps. If you feel you're being treated unfairly (for
example, by having to provide your services at the client site when
you really could just as easily do them at home) you can cite this
form, and I believe, ask your employer to file one. Of course, this
would be a last resort, since it probably means that you wouldn't work
for them any more...
Let me know if you all have any questions -- I'll answer what I can.
NB: I AM NOT a tax attorney (or an attorney of any sort). DO NOT
interpret this information as legal advice. This is my interpretation
of tax form SS-8, based on explanations I have received from legal
Bonni Graham |
Technical Writer | Most software is run by
Easel Corporation, ENFIN Technology Lab | confused users acting on
Bonni_Graham_at_Enfin-SD -at- relay -dot- proteon -dot- com | incorrect and incomplete
President, San Diego STC | information, doing things
| the designer never expected.
NOTE: apparently my email address needs |
to be typed exactly as it appears here, | --Paul Heckel, quoted
punctuation and all, or the system gets | by William Horton