Employee or Independent Contractor?... That is the Question!
Employee or Independent Contractor?... That is the Question!
Some examples...
...The Attorney General's office issued a sobering Advisory which concluded by reminding readers that violations carry a maximum penalty of up to $50,000.00, as well as prison time and criminal fines for criminal violations!
...The Massachusetts Supreme Judicial Court chose to take jurisdiction of a case that, in December of 2006, it then ruled upon against the employer.
So, what is a beleaguered small business employer to do? Read on for my suggestions...
Here's an example of the dilemma in which small business employers find themselves:
Small Company wants to hire a "freelance consultant" on a part-time basis to work on a large customer's contracts. Small Company has no specific termination date in mind and would like this consultant (who happens to be her neighbor's daughter and a recent, unemployed college graduate) to work side-by-side with a full-time Small Company employee, performing similar tasks. Small Company does not want to hire this "freelancer" as an employee since Small Company is not sure how long this particular customer will continue to need the level of service Small Company is now providing. Small Company would prefer to hire the freelancer as an "independent contractor" and the freelancer is willing to work as such.
Is this arrangement allowable? Here are the basic questions Small Company's counsel will ask:
Is the freelancer free of Small Company's "control and direction" in the performance of her employment duties?
Is the freelancer performing services "outside the usual course of the employer's business?"
Is the freelancer engaged in an "independently established trade, occupation, profession or business?" In other words, is the freelancer already in business performing the kinds of services she will perform for Small Company?
What will counsel's advice to Small Company be?
In the interests of protecting Small Company from potential violations under this law, counsel will undoubtedly advise Small Company to hire the freelancer as an employee.
Further, Small Company will be advised to remind the freelancer in an offer letter that all Small Company employees are "at will" (which means her employment is for an unspecified period of time), and to have all the usual taxes and other deductions deducted from her paycheck.
But what if the freelancer tells Small Company she will happily sign a contract as an independent contractor? Small Company should still not leap at this offer, but consider first requiring that freelancer form a one-person corporation or limited liability company whose purpose would be to provide services to more than one employer (before entering into that contract). In this case, and although an "independent contractor" agreement entered into between Small Company and an individual would not be the determinative fact for scrutiny of the arrangement, Small Company's contract with another company might very well pass scrutiny since freelancer now has an established business.
What's the moral of this tale? It's twofold. First, just because two parties (in this case, Small Company and prospective freelancer) are willing to enter into an agreement together freely, it doesn't necessarily make it legal. And second, when in doubt, assume nothing, ask many questions and protect your business from avoidable government enforcement activities!
Employee or Independent Contractor That is the Question - To learn more about this author, visit Marijo McCarthy's Website.
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Twice in as many weeks, a client has called with a question about the characterization of a possible new hire. And, although it has been three years since the Massachusetts legislature passed the law that a Massachusetts Lawyers Weekly headline referred to as "an earthquake for employers in Massachusetts," the aftershocks continue to be felt.
Some examples...
...The Attorney General's office issued a sobering Advisory which concluded by reminding readers that violations carry a maximum penalty of up to $50,000.00, as well as prison time and criminal fines for criminal violations!
...The Massachusetts Supreme Judicial Court chose to take jurisdiction of a case that, in December of 2006, it then ruled upon against the employer.
So, what is a beleaguered small business employer to do? Read on for my suggestions...
Here's an example of the dilemma in which small business employers find themselves:
Small Company wants to hire a "freelance consultant" on a part-time basis to work on a large customer's contracts. Small Company has no specific termination date in mind and would like this consultant (who happens to be her neighbor's daughter and a recent, unemployed college graduate) to work side-by-side with a full-time Small Company employee, performing similar tasks. Small Company does not want to hire this "freelancer" as an employee since Small Company is not sure how long this particular customer will continue to need the level of service Small Company is now providing. Small Company would prefer to hire the freelancer as an "independent contractor" and the freelancer is willing to work as such.
Is this arrangement allowable? Here are the basic questions Small Company's counsel will ask:
Is the freelancer free of Small Company's "control and direction" in the performance of her employment duties?
Is the freelancer performing services "outside the usual course of the employer's business?"
Is the freelancer engaged in an "independently established trade, occupation, profession or business?" In other words, is the freelancer already in business performing the kinds of services she will perform for Small Company?
What will counsel's advice to Small Company be?
In the interests of protecting Small Company from potential violations under this law, counsel will undoubtedly advise Small Company to hire the freelancer as an employee.
Further, Small Company will be advised to remind the freelancer in an offer letter that all Small Company employees are "at will" (which means her employment is for an unspecified period of time), and to have all the usual taxes and other deductions deducted from her paycheck.
But what if the freelancer tells Small Company she will happily sign a contract as an independent contractor? Small Company should still not leap at this offer, but consider first requiring that freelancer form a one-person corporation or limited liability company whose purpose would be to provide services to more than one employer (before entering into that contract). In this case, and although an "independent contractor" agreement entered into between Small Company and an individual would not be the determinative fact for scrutiny of the arrangement, Small Company's contract with another company might very well pass scrutiny since freelancer now has an established business.
What's the moral of this tale? It's twofold. First, just because two parties (in this case, Small Company and prospective freelancer) are willing to enter into an agreement together freely, it doesn't necessarily make it legal. And second, when in doubt, assume nothing, ask many questions and protect your business from avoidable government enforcement activities!
Employee or Independent Contractor That is the Question - To learn more about this author, visit Marijo McCarthy's Website.
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Leanne Hoagland-SmithAre your sales where you want them to be? Will you be one of the few who achieves sales or business success or one of the many who have failed to change? Are you tired of being told you are like everyone else? Then you may find my first book on sales of interest. Be the Red Jacket in the Sea of Gray Suits, The Keys to Unlocking Sales available at Amazon or at http://www.processspecialist.com/red-jacket.htm. This book is a reflection of my no-nonsense approach to improving sales to overall business results. If you are truly committed to making sustainable changes, then I can help you secure a positive return on your investment because I focus on executable solutions not telling you the problems you already know you have. From training to corporate (group) coaching to executive one on one coaching, my approach is to assess, create awareness, build a goal driven action plan and then execute. The bottom line question is "Not do you or your employees know it, but do you or they want to do it?" Please call for a free strategy session at 219.759.5601. - Visit Leanne Hoagland-Smith's Website |
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Jay Kubassek(Jay's Full Bio: EvanCarmichael.com/jaykubassek) In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.
As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)
Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist. Jay resides in NYC with his wife Jamie, son Milo and dog Cooper. Visit Jay's official website: www.JayKubassek.com - Visit Jay Kubassek's Website |
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