Everyone is not a Contractor
As you build, you need help! It is natural to employ the assistance of contract resources until you are ready to consider building out a full-time team. As an employer, it is important to understand your risk – and how to avoid missteps. Bottom line. You are responsible for following required employment guidelines.
Our VP of Talent Solutions, Carolyn Kilbride teamed with startup attorney Ryan Schick at Stansbury Weaver to share guidance on this critical topic.
Generally, an INDEPENDENT CONTRACTOR (IC) is a worker who offers their services to the public for a fee, is not economically dependent on any single company, and is not an employee.
An INDEPENDENT CONTRACTOR typically charges a fee for their services and is engaged only for the term required to perform a specified service or task.
Additionally, an INDEPENDENT CONTRACTOR retains control over the method and manner of work, retains economic independence and is free to offer their services to more than one company.
An INDEPENDENT CONTRACTOR is also responsible for paying their own income, social security, and Medicare taxes and is not covered by most federal, state, or local laws designed to protect employees.
An INDEPENDENT CONTRACTOR does not have the “indicia” of an employee, such as company uniforms, name badges, or business cards. Additionally, they do not receive company-sponsored benefits, such as paid vacation, health insurance, or retirement benefits.
An INDEPENDENT CONTRACTOR does not perform the same work as the company’s employees. Independent contractors and employees are not interchangeable.
An EMPLOYEE, by comparison, is subject to significant oversight and control by the company. Employees are employed for a continuous period and performs whatever tasks the company requires in exchange for paid wages and company-sponsored benefits. Generally, employees pay their income, social security, and Medicare taxes through the amounts their employer is obligated to withhold from their wages, is economically dependent on the employer and is protected by applicable federal, state, and local employment laws.
RULES OF THE ROAD
• Don't supervise the IC or his or her assistants; the IC should perform services without your direction
• Don’t prohibit the IC from using subcontractors
• Don't let the IC work at your offices unless the nature of the services absolutely requires it
• Don't give the IC employee handbooks or company policy manuals
• Don't establish the IC's working hours
• Avoid giving ICs so much work or such short deadlines that they have to work full time for you
• Don’t prohibit ICs from working for other companies
• Don't provide ongoing instructions or training on how to do the work (Giving specifications for the final product is generally fine)
• Don't provide the IC with equipment or materials unless absolutely necessary
• Don't give an IC business cards or stationery that have your company name on them
• Don’t give an IC a company email
• Don't give an IC a title within your company
• Don't pay the IC's travel or other business expenses, unless they are unique to the project and have been negotiated in advance
• Don't give an IC employment benefits
• Don't require an IC to give you regular status reports
• Don't invite an IC to employee meetings or functions
• Don't refer to an IC as an employee or to your company as the IC's employer
• Don't pay ICs on a weekly, biweekly, or monthly basis. Instead, require ICs to submit invoices, and pay them at the same time you pay other outside vendors
• Don’t provide ICs with W-2 forms
• Follow the terms of the IC agreement, including its termination provisions
• Don't give the IC new work after the original project is completed without signing a new IC agreement
Do you have additional questions? You are not alone! We can help you sort through the best solution for your startup team!