Reminder: Jan. 31 Deadline for Filing Independent Contractor Forms

new year 2018Businesses that retain independent contractors need to remember to file their tax forms. The 1099-MISC forms used for reporting payments made to independent contractors are due to the IRS on January 31st. The payments are to be reported in Box 7. Click here for more helpful filing tips from your friends at the Internal Revenue Service.

Generally, the IRS requires a Form 1099-MISC to be issued for any independent contractor who is paid $600 or more in any year.

How do you know whether you have to file a Form 1099-MISC? The IRS advises that if the following four conditions are met, businesses (or individuals) must report a payment as nonemployee compensation:

  • You made the payment to someone who is not your employee;
  • You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations);
  • You made the payment to an individual, partnership, estate, or in some cases, a corporation; and
  • You made payments to the payee of at least $600 during the year.

Nonemployee compensation paid to nonresident aliens is reported on Form 1042-S, Foreign Persons’ U.S. Source Income Subject to Withholding (PDF), where some withholding may be required.

(Extra bonus disclaimer in addition to regular disclaimer: This is definitely not tax advice. Check with the IRS or your tax adviser to make sure you know what you’re doing.)

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Did You Know You Can Be Cited for OSHA Violations for Non-Employee Workers?

osha violations joint employment

Can OSHA cite your business for conditions that affect another company’s employees? Maybe.

OSHA’s Multi-Employer Citation Policy addresses who gets cited for violations that occur on a multi-employer worksite. If your company hosts staffing agency workers, that may include you.

The policy has been subjected to several legal challenges, though, based on an argument that OSHA obligations extend only to an employer’s own employees. One of these challenges is currently pending in the Fifth Circuit Court of Appeals, based on a dispute over an Austin, Texas, construction site.

While we wait for a decision, though, here’s what OSHA has to say about its authority to issue citations on multi-employer worksites:

OSHA applies a two-step process for determining whether to cite more than one employer for a hazardous condition that violates an OSHA standard.

First, it must be determined whether the business is a “creating, exposing, correcting, or controlling employer.” If so, it may have at least some obligations under OSHA. The extent of this obligations vary based on which category applies.

Second, depending on the category, it must be determined whether the employer satisfied its obligations.

A “creating” employer is one that caused a hazardous condition that violates an OSHA standard. Employers who create hazardous conditions may be cited even if the employees exposed are employees of another employer at the site.

An “exposing” employer is an employer whose own employees are exposed to a hazardous condition. If the exposing employer created the condition, it may be cited. If the condition was created by another employer, the exposing employer may still be liable if it knew (or should have known) of the condition and failed to take reasonable steps to protect its employees.

A “correcting” employer is a business engaged in a common undertaking, on the same worksite, as the exposing employer and is responsible for correcting a hazard. This can happen when an outside business is brought onsite to install or repair equipment. The correcting employer’s duty is to exercise reasonable care in preventing and discovering violations and to meet its obligations related to correcting the hazard.

A “controlling” employer is one who has general supervisory authority over the worksite, including the power to correct safety and health violations itself or require others to correct them. Control can be established by contract or by the actual exercise of control. A controlling employer must exercise reasonable care to prevent and detect violations on the site. The controlling employer has less of a duty with respect to other employers’ employees than it does with respect to its own employees. For example, the controlling employer is not normally required to inspect for hazards as frequently or to have the same level of knowledge of the applicable standards or of trade expertise as the employer it has retained.

If you host employees of another business, dig deeper to examine the extent of your obligations under OSHA. Your duties may not be the same as for your own employees, but you may still have important responsibilities when it comes to maintaining a safe worksite.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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New Year’s Resolution: 5 Tips to Limit Risks of an Independent Contractor Misclassification Claim

new years resolutions independent contractor misclassification 2018You know deep down you’re not really going to run a triathlon or learn Mandarin in 2018, so how about a New Year’s Resolution that’s more realistic? Here are 5 things businesses can do to limit their risks of an independent contractor misclassification finding:

  1. Review and edit contracts. Independent Contractor Agreements should be customized for the specific retention, highlighting actual facts that would be helpful in opposing a challenge to independent contractor status.
  2. Review and modify facts. Almost every independent contractor relationship can be strengthened by finding ways you can give up control or memorialize ways that you do not ever intent to exercise control. Does it really matter what times of the day your contractor works? If you set hours and don’t need to, change that fact. Then memorialize it in the contract.
  3. Use a Vendor Qualification Questionnaire. Qualify your contractors before retaining them. Make them represent to you that they are really in business for themselves, have other clients, are not economically dependent on getting work from you, etc. These representations can be useful if the contractor — or the government — ever challenges the contractor’s classification by claiming the relationship is really employment.
  4. Assign a gatekeeper. You may have contractors that you don’t even know about because managers in parts of the business have retained outside help rather than ask permission to hire new employees. Create a process that requires managers to obtain permission from a particular person before retaining any outside labor.
  5. Be proactive. Examine the facts and circumstances of your independent contractor relationships now. Know where you stand on the risk scale. Then assess how you can make changes to better protect your business against a claim of independent contractor misclassification. There are almost always steps that can be taken proactively to limit your risks. Be ready.

These are steps every business can take either internally, or with a little outside help. You’ve probably heard Ben Franklin’s axiom, “An ounce of prevention is worth a pound of cure.” Ol’ Ben was giving fire safety advice to his fellow Philadelphians in 1736, but the advice holds true as well when evaluating independent contractor relationships in 2018. Take steps now to reduce risks, and place your business in a better position to extinguish any claims of misclassification.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Can You Pay a Bonus to Your Independent Contractors?

“I want my money!” — Pearl, in The Landlord.

If you haven’t seen this Will Ferrell short video from 1997, take a look. Pretty funny.

Everyone wants their money. Method of payment is one of many factors used to evaluate whether an independent contractor is properly classified or instead is an employee.

Payment by the hour is permitted, but this method of payment more closely resembles employment. Payment by the project, regardless of time spent working, is most appropriate for an independent contractor relationship.

Other methods will do, though, and a fixed payment by the day, the week, or the month can be workable too. Method of payment is just one of many factors in the analysis of Independent Contractor vs. Employee.

Incentive pay for contractors is permitted too. Some examples of bonuses that may be appropriate include:

  • Incentive for early completion of a project;
  • Incentive for achieving certain project-based goals;
  • Incentive for accepting additional gigs.

The more closely the incentive can be tied to the project, the better. If properly classified, independent contractors are in business for themselves, and project-based retentions are most indicative of legitimate independent contractor relationships. Similarly, incentives should be project-based whenever possible.

One final tip: Terminology matters. “Bonus” sounds like something an employee would receive. Try offering “incentive payments” instead.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Are Santa’s Elves Employees or Independent Contractors?

elves independent contractors or employeesFor roughly 200 years, Santa has been retaining seasonal help at his Arctic Circle workshop. His undersized non-union workers toil in an icy land that sits beyond the jurisdiction of U.S. employment laws, a wise move by Mr. Claus and his attorneys.

While children around the world ask silly questions like, Can I visit the elves? and What do elves eat? and How do they work so fast?this blog asks the serious question that all adult businesspeople want to know: Are elves employees or independent contractors?

Spoiler alert for the children: The answers are No, Caribou, and Amphetamines.

The adult question takes some analysis. Let’s peek behind the wintry curtain.

We know the elves are seasonal workers. The last few months of every year, they work their tiny asses off, manufacturing a few billion toys in a well-hidden workshop. Some small businesses make the mistake of thinking that short-term work means the worker can be classified as an independent contractor, but employment can be short-term too. If the other facts show control, economic reliance, etc., the elves will be employees. Doesn’t matter if the elves go back on the dole every January 1 for lack of work.

What about control? We know Santa gets a long list of demands from children, and many of these are detailed. Kids aren’t making vague requests for any old cell phone. They want the iPhone X with 256 GB of storage and an unlimited data plan. Santa needs to make sure the toys are build to spec. The elves cannot freestyle here. Santa supervises his staff, maintaining the right to control how they do their work.

Looking at other factors in the Right to Control Test, it’s really not a close call. The elves are told where to work (at Santa’s 10 billion sf workshop), when to work (23 hours a day, plus one hour in the yard for exercise), and they’re monitored every step of the way (little known fact: Mrs. C spends most of December knitting in front of a wall of security monitors). If Pete the Elf puts the wrong wheel on Little Johnny’s tricycle, you think Santa would stand for that? Heck no. The elves have no discretion. They work hard and are closely monitored. The only reason Santa’s workshop is not considered a sweatshop is that it’s in the Arctic.

Fortunately for the jolly taskmaster, U.S. wage and hour law doesn’t apply to enterprises at the earth’s geographic poles. Elves would surely be considered employees, not independent contractors, if the Fair Labor Standards Act applied. The Economic Realities Test determines whether elves are employees or contractors for minimum wage and overtime law, and this is an easy call. Elves are economically reliant on St. Nick to earn a living. You don’t see elves earning extra cash selling rasta beads at Jamaican resorts in February, do you? No. Elves earn all their green making toys up north.

Elves are employees, not independent contractors, even though they perform all their work in a few short months. The rest of the year they drink tiny cocktails and surf tiny waves in the tropics.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Using Independent Contractors Saved This Hospital an Arm and a Leg! (Really, Just a Leg)

leg broken independent contractor vs employee liabilityToday we attempt to answer a medical mystery: If I have to get my leg amputated because a doctor misdiagnosed me at the hospital, can I sue the hospital for malpractice?

Seems like an easy “yes,” right? Not so fast.

Suppose the doctor was an independent contractor, and suppose the hospital is a public institution. Those were the facts presented to the Supreme Court of Wyoming in a recent case (which also serves as a nice reminder that if you are admitted to the hospital with numbness and cramping in the legs and an “inability to walk,” it would be a good idea to get a vascular consult — assuming you want to keep your leg).

The Wyoming Supreme Court had to interpret a state statute that limited the liability of public hospitals to acts by its employees, except if a hospital extended its liability on purpose through an insurance policy. The hospital here had an insurance policy, but the policy did not reference coverage for acts by independent contractors.

The Court ruled that because the negligence (correction: alleged) “alleged” negligence was by a doctor who was seeing hospital patients as an independent contractor, the hospital was immune from liability for any negligence by the doctor.

Our fearless hero, the amputee, would have to sue the doctor instead. He could not sue the hospital. The case does not address how much malpractice insurance the doctor had, but I would bet my unamputated left leg that it was quite a bit less coverage than the hospital had.

The facts in this case are fairly specific, so I wouldn’t draw a lot of generalizations here. The case required the interpretation of a Wyoming statute and a specific insurance contract.

The case does serve as a reminder, though, of one of the many benefits of having work performed by legitimate independent contractors. The hospital would have been subject to liability if the doctor was an employee, but it faced no liability because the doctor was an independent contractor.

The key to victory, of course, is having a legitimate independent contractor relationship. As we have discussed many times in this blog, there are often disputes over whether a so-called independent contractor is properly classified or should really be considered an employee.

Courts will look to the facts of the relationship to determine Who Is My Employee? and will not just rely on what the parties call the relationship or the fact that a 1099 was issued instead of a W-2.

Depending on which law is being applied, the test for Independent Contractor vs. Employee may be a Right to Control Test, an Economic Realities Test, an ABC Test, or some other hybrid or variation. It’s important to understand whether your independent contractor relationships would hold up to scrutiny, and it’s important to conduct that review before you get sued.

Proper classification in this case meant the difference between zero liability and having to pay the going rate for an amputated leg.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Here’s a Tip a Cartoon Cat Would Love: Try This Edit to Your Independent Contractor Agreements

Independent contractor misclassification cat“Whenever he gets in a fix, he reaches into his bag of tricks!” Yes, boys and girls, I am talking about Felix the Cat, whose magical bag of tricks could be transformed to get him out of any treacherous situation. Don’t you wish you had one of those?

Well, I won’t share mine, but I can offer this tip, which may help you avoid a treacherous situation.

This weekend I was reading a California decision on independent contractor misclassification. (I do other, more fun things in my free time too, so don’t make fun. Ok, you should make fun a little.) While analyzing Right to Control factors, the court ruled that the worst fact for the business was that it could terminate the contractor at will. The ability to terminate a relationship at will, the court ruled, was the “ultimate” form of control! Really? I agree it’s a factor among many, but the “ultimate factor”? Come on.

Anyway, this problem is easily avoided with some creativity. Allow me to reach into my bag of tricks.

If your relationship with a contractor is for an indefinite time period and you rely on work orders to describe each project, consider a one-year term instead. No, not a one-year term with auto-renewals unless the parties give notice. That’s too close to an indefinite term. Allow the one year term to expire. But…

Add a provision that, after the one-year term expires, if you offer a new work order and if the contractor accepts a new work order, then acceptance of that new work order constitutes an agreement to renew the independent contractor agreement for another year.

This variation on the auto-renewal approach requires the parties to take an affirmative act to renew the agreement — the offer and acceptance of a new work order. And this approach also allows you to maintain that the relationship with the contractor is project-by-project (one work order at a time).

The main agreement does not have to be terminable at will. No need for that. If each project is defined by a work order and you’re not satisfied, then don’t offer any new work orders. The agreement itself does not have to be terminated.

If your independent contractor’s tasks are not defined by work orders, then this solution might not work for you. But if your contractor picks up work one work order at a time, this can be a helpful little maneuver.

No guarantees here, but I like this approach better than the indefinite agreement. Contracts of indefinite duration are definitely a negative factor in the Independent Contractor vs. Employee analysis, even though most courts would not be as fixated on that fact as this particular court was.

Now I am going to turn my bag of tricks into a helicopter.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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