In light of the national trend to rule in favor of employee status, your company should stay keenly aware of the relationship maintained with independent contractors.
Keep in mind these tips when you hire an independent contractor:
- Hire an individual independently licensed or certified to conduct the particular services, or
- Hire an individual customarily engaged in these services for other businesses
- Specify the individual’s duties and payment in an independent contractor agreement
- Do not supervise or direct the worker
- Do not delegate work considered a regular and essential part of your business
This boils down to maintaining the “independent” in “independent contractor.” Prior to commencing a business relationship with an independent contractor, it is wise to consult with legal counsel to ensure the contract and services are consistent with currently evolving legal developments.
Get it in Writing!
It is also wise to get the terms of the agreement in writing. This is important for the following reasons:
- A writing clarifies the terms of the agreement and forces both parties’ review. This eliminates misunderstandings or incorrect assumptions from the start.
- An oral discussion about the terms of the agreement is hard to remember, by putting it in writing both parties may conveniently reference the terms in the future.
- An employer appears more professional when it memorializes the working relationship.
One last tip—anytime a business pays an independent contractor $600 or more in a fiscal year it must complete a 1099-MISC form. This requires an employer to complete two 1099 forms—one for the company to file for its own taxes and another for the independent contractor to file with his or her taxes.
The “Over-Achiever” Section
This section is for the “over-achievers” out there who want more detail on what the actual independent contractor agreement would look like. There are a number of common questions when dealing with these types of agreements.
1. Independent contractors for longer terms.
Sometimes you may want to work with an independent contractor for a prolonged period of time, but you want to be sure to preserve the “contractor” nature of the relationship. This can get a little dicey because a longer termed contractor relationship can start to resemble an employment relationship in the eyes of the law. So you may want to either try and keep the relationship shorter or have a new independent contractor agreement for each different project (more of this next).
2. Projects, projects, projects!
Another common situation that arises with independent contractors is that you may work with them for multiple projects, either consecutively or sporadically. No problem! This is totally permissible, but you will want to approach this situation carefully. There are two common ways to handle this:
- You (or, more likely, your lawyer) can insert very specific language that incorporates scopes of work or invoices for various, new projects into the same independent contractor agreement. You just add on to what you already have. Note: this option may not be as air-tight, but likely less burdensome.
- Once you have a solid independent contractor agreement, you can reuse that document as a template and sign a new one with the independent contractor for every new project. Although this option sounds like a pain, it is ultimately one of the most protective because it preserves the fundamental aim of independent contractor relationships.
3. The proverbial “Exhibit”
In our own independent contractor agreements, we include the option of an “Exhibit”. We know what you’re thinking: what on earth does that mean? Basically, this means that you can address the above situations (i.e. longer contractor relationships and multiple projects) by using this section in an agreement. This is where any additions live. But again, this can still be a little fuzzy, so it’s best to speak with your lawyer about all this to see what works best for your situation.
Effective April 30, 2018, California now uses the ABC Test to determine whether an employer can classify a worker as an independent contractor. A California Supreme Court case adopted the ABC Test, which is currently used by Massachusetts and New Jersey. The new test provides:
- The worker must be free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; AND
- The worker should perform work that is outside the usual course of the hiring entity’s business; AND
- The worker should be customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
Since California so recently adopted the ABC Test, the effect of the test remains somewhat unclear. Therefore, California employers are encouraged to reevaluate their independent contractor relationships. Feel free to reach out for further guidance.
New York Update
Effective May 15, 2017, New York law increased the regulations for employer relationships with independent contractors by enacting the “Freelance Isn’t Free” Act (the “Act”). To solidify and add to the content of this article and its recommended “best practices,” the Act provides the following:
- For jobs amounting to $800 or more, the contract between the employer and the independent contractor must be in writing;
- Independent contractors must be paid in a timely and complete manner (i.e. within 30 days after the completion of the work, unless the parties provided otherwise in their agreement);
- The Act prevents employers from retaliating against an independent contractor for he or she exercising rights under the new Act; and
- Failures to abide by the Act will result in civil penalties (more on that here).
The Act, however, will not apply to would-be independent contractors that are sales representatives, lawyers, and medical professionals. Bearing all this in mind, New York employers should be sure to review the Act and its applicability to their businesses. Remember, folks, stay complaint!
Revised by: Zachary Avina – 05/14/18
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