Aren't'
Whatever the parties believe or contract, the IRS has the final word about
whether or not a worker is really an employee Considering he's the richest man
in the country, not all has been going Bill Gates' way. The Justice Department
is after him on Antitrust grounds; he recently took a pie in the face; and his
senior managers at Microsoft Corp. learned that workers can be company employees
even after they sign agreements that they're independent contractors. Whatever
the parties believe or contract, the IRS has the final word about whether or not
a worker is really an employee - and whether his or her boss can be saddled with
all kinds of penalties for violating federal law. What's more, the employer
might well face a slew of new and unexpected costs - FICA, unemployment
insurance, workers' compensation, overtime pay and employee benefit plan
contributions among them. The IRS decides who is an employee and who isn't by
reference to a 20-factor test, but it all really boils down to control. If the
company has the right not only to decide what job is to be done, but exactly how
it is to be done, the worker is probably an employee and enjoys all the rights
of employment. Here are a few pointers to keep in mind as you try to stay on
the safe side of any controversy: Insist that your independent contractor
invoice you for services rendered. Billing is a clear indicator of
self-employment. Stay away from words connoting employment. Your contractor
should be "retained," not hired; and he or she should be paid a "fee," not a
"salary" or "wage". Make sure your contract denies the worker any and all
benefits, including health insurance. And, finally, shift some entrepreneurial
risk to the worker, who should pay all job-related expenses. As any
self-employed person would, he or she should then build those costs into the fee
your company is charged. Follow the rules and, in at least this one small way,
you'll have a better year than Bill Gates is having. About the AuthorMarc Lane
is a business and tax attorney, a Master Registered Financial Planner, a
Registered Financial Consultant, and a Certified Investment Specialist. Marc is
the author of 30 books on business organization, taxation, and personal finance.
His newest book, "Advising Entrepreneurs: Dynamic Strategies for Financial
Growth" draws from his experience working with those who have successfully built
their businesses. Marc is an Adjunct Professor of Law at Northwestern
University and an Adjunct Professor of Business at the University of Illinois.
His practice areas include Individual Taxation, Corporate Tax Planning, Business
Tax Planning, Estate Planning, Investments, Retirement Planning,Elder Law,
International Trade, Business Law, and Wills, Trusts and Estates. Additional
articles, case studies, and a free email newsletter are available at
www.marcjlane.com.
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