Currently, here in Columbus, the trend in employing web developers is to hire independent contractors. In many cases, they're "contract to hire," where the idea is that the employee would work on a contract basis for the first couple of months, then be hired for full benefits after this "trial period." In some of those cases, that "trial" period never actually ends, and the employee is expected to show up to work every day and not receive the full benefits of employment. This practice, however, isn't necessary legal. Whether you're a contractor or an employer, you should know where that line is between contractor and employee.
The IRS has a law that details particular qualifications that determine whether a person is an employee or independent contractor. According to Findlaw, there are twenty factors that determine whether a person is an employee or an independent contractor.
These factors include:
- Level of Instruction
- Degree of business integration
- Extent of personal services
- Continuity of relationship
- Flexibility of schedule
- Demands for full-time work
- Need for on-site services
- Sequence of work
- Requirements for reports
- Method of payment
- Payment of business or travel expenses
- Provision of tools and materials
- Investment in facilities
- Realization of profit or loss
- Work for multiple companies
- Availablity to the public
- Control over discharge
- Right of termination
These factors are considered on a whole, with some factors holding more weight than others, to determine whether a person is a contractor or an employee. Utimately, it comes down to who has control over when, where, and how a person's work is done. If the employer has most or all of the control, then the worker is a de facto employee. If not, then the worker is an independent contractor.
What this law means is that employers should be careful about how they use their contractors. Likewise, workers should be aware of what their rights are. If the IRS gets involved and reclassifies contract workers as employees, employers owe the IRS the back taxes for the length of time determined, and then have to provide the workers with the benefits of employees if the company continues to use their services.
Microsoft learned this the hard way in the late 1980s. They had hired a large number of "independent contractors" that were assimilated into the teams, were required to work at the offices during the company's hours, and used the company's equipment. The IRS determined that the "freelancers" were actually employees, and Microsoft paid the back taxes for the previous two years of the workers' employment.
If you're a contractor, keep an eye on what your employer is asking you to do, particularly if you have an ongoing relationship with them. Your ability to work for multiple, even competing companies, as well as your ability to choose when and where to work, are some of the heavier-weighted factors in whether or not you're a de facto employee.
Be nice to your employer, particularly if the company isn't a behemoth like Microsoft or Nationwide Insurance (another company that got in trouble with de facto employees). The law is somewhat obscure to those that aren't lawyers, and can be hard to find within the labyrinth of federal statutes, so it's entirely possible that a smaller company, which generally lacks an on-staff lawyer to guide their decisions, simply might not know about the law. If that's the case, it would likely be easier to swallow the recommendation for change if it came from a worker, than if it came from the IRS and with a mandate to pay back taxes for the contractors.