Advice on 1099 Contractor Risk Mitigation
In a recent blog convesation I had with Shaun Reid,Principal at Reid Kelly, P.C. Law Firm in the NYC area, we were dicussing some
of the preventitive measures companies can take to protect and determine if a contractor is "legit" or not. Shaun provided a sussinct and easy to follow guideline for engaging 1099s or Independent Contractors for your business.
Here's what Shaun Had to share:
Ted. I have been tracking this issue within the topic of worker misclassification more broadly. The economy is pushing both employers to rely more heavily on independent contractors, and broke governments to increase enforcement to raise revenue. This, in addition to employer incorrect use of interns, and incorrect designation of employees as exempt from overtime, all add to potential employer liability. I write about it here: http://www.reidkellypc.com/blog/potential-shut-downs-for-start-ups-employee-misclassification-minefields/
Here in New York, several government agencies have their own tests for determining whether a worker is an employee or an independent contractor. The dominant theme in each test is the degree of control the hiring person/entity exerts over the manner in which the work is performed. As such, the two points I typically make are:
(1) make sure that the worker has all the indicia of a bona fide independent business (i.e., tax Id number, business cards, stationary, insurance, their own tools/equipment, they advertise their business and services in print and/or electronic media, they are free to accept or reject other work, they assume the risk of profit or loss in provision of services, etc.), and;
(2) Have an experienced labor & employment attorney write a contract specifying that the relationship is that of independent contractor, within which you should:
a). define the scope of services,
b). list the fee to be paid (flat amounts are better than anything that looks like a weekly/bi-weekly wage),
c). indicate that they pay their own expenses (including supplies, insurance, workers comp, etc.)
d). indicate that they may hire additional help if they wish (at no extra cost to you or at an increased contract cost to be renegotiated with you),
e). make clear that they are free to determine the order of work and which of their workers to use on any given aspect of the project, etc.
There are other things that can be done to evidence independent contractor status. However, the main point being that the you want to show that the hiring party exerts the least amount of control possible in how the desired result is obtained, and that the hired party is in business for themselves, freely deciding how to accomplish the goals of the project, with all of the potential for profit and loss typically experienced by legitimate independent businesses.
PSC always encourages our readers to verify all our content with thier own legal resources. The information we provide here is for directional purposes only.