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Do Not Turn Your Contractor Into An Employee!

Managers are expected to tell employees when, where, and how to perform their duties.  However, if they choose to do the same thing to an independent contractor, that individual might be deemed an employee.  And if such a designation is given by the IRS or another administrative agency, your company could be liable for overtime pay, benefits, and back taxes.

Managing The Person

For instance, let us look at a hypothetical addressing some of the issues that arise based upon how the worker is managed.  Laura was hired as an independent contractor to complete a special assignment in manager Allen’s department. Knowing the high importance executives placed on the project, Allen was eager to make sure that the project was done right and on time.

So Allen requires a status report summarizing the work for the week to be submitted to him each Friday.  The report also outlines the plan for the upcoming week.  Laura complies with the weekly status reporting requirement.

Allen then requires Laura to work on-site and during his work hours so he can be available to answer any questions if needed.  Laura advised that she does much of the work from her own office and sets her own hours.  However, Allen insists because he can show Laura the best way to complete certain aspects of the project.

Allen’s “helpfulness” could hurt his company in the long run.

Managing The Project

When it comes to managing an independent contractor, the best thing you can do is to think of yourself as a customer. This is because customers have a vested interest in making sure they get the product for which they paid, but they don’t manage the production of the product. Customers are concerned with the end result.  It is less important how the independent contractor completes a project; it is more important that the project is completed on time and to the agreed upon standards.

You can set certain goals, expectations, or milestones, but you must generally allow the contractor to tackle the project as they see fit.  The business executive should not think of himself as a project manager. His role with an independent contractor is more as a liaison between the company and the contractor for keeping the project on track, checking quality standards, providing feedback, and answering questions.

Action Tips

Different agencies have different tests for determining independent contractor status. The Labor Department’s definition of an employee is much broader than that of the IRS. Below are best practices to ensure that an independent contractor isn’t treated like an employee in either agency’s eyes.

  • Skip training, but be available to answer questions. It’s okay to provide direction, especially if the worker specifically asks for it.
  • Refrain from providing the worker with a uniform, tools, supplies, or business cards. It might be okay to provide the worker with a company e-mail address if they will be communicating with outside parties on the company’s behalf, but check with HR first.
  • Introduce the worker to employees as an independent contractor, explaining why they were hired and how long the project is supposed to last, so they understand why the individual is seemingly enjoying special treatment (e.g., coming and going as they please, being excused from training sessions).
  • Hold the worker to discrimination, harassment, and other professionalism policies, but do not hold them to attendance, progressive discipline, or moonlighting policies. Tip: Do not provide the worker with a full copy of the employee handbook; instead, photocopy relevant policies.
  • Let the worker cover their own expenses. Don’t offer to reimburse them for supplies, equipment, etc.
  • Beware of extending employee perks, such as a performance bonus (unless it is part of the contract) or an invitation to a company event.
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