Independent Contractor Compliance Blog - by Collabrus™

Many clients I’ve worked with have taken a true Independent Contractor (1099) and slowly turned him/her into an employee (misclassified worker). The following Don’ts are traps that almost guarantee your IC becomes a misclassified worker. They deal with Direction and Control, which is the most important factor in deciding if someone is an employee or an independent contractor.

Don’t require, or even encourage, your independent contractor to attend your routine employee meetings

Employees attend employee meetings. It may sound simplistic, but that doesn’t make it any less important. The more your consultant looks and acts like an employee the more he/she is drifting towards that status. Staff meetings are where administrative policies and instructions about the company’s operation are dispensed. In other words, Direction and Control is exercised over employees at staff meetings.

Don’t allow the IC to supervise your regular employees

The reason for this may not be obvious at first. Sometimes it makes sense for the outside expert with special skills and knowledge to come in and show your staff the proper way to work on a project. It’s proper for the consultant to train staff on the new processes or systems, especially when doing so is part of the contracted deliverables. However, on the day-to-day work operation the more the consultant is providing detailed instructions about the work the more the consultant is looking like a supervisor.

You’ve probably heard the expression “before you can lead you have to follow.” A supervisor’s authority comes from the ownership of the business and flows through him/her to the subordinate employees. When someone has the authority to supervise he/she in turn must be subject to the supervision of someone higher (Direction and Control). This by definition makes a supervisor an employee.

Now let’s apply this logical progression to Independent Contractors:

• Supervisors are employees,
• Independent contractors are not employees;
• Therefore: Independent contractors are not supervisors.

Don’t allow your consultant to be supervised like an employee

This is the mirror image of the last Don’t. If your consultant is being supervised on a day-to-day basis by one of your employees he/she is subject to Direction and Control by definition. A good tax auditor or attorney will look for specific examples of being supervised when trying to prove someone is/was an employee. If they can bring specific examples of this into court they will win their case.

What’s next?

There are a few more Don’ts you should know about. Ignoring the next group of don’ts will be a Red Flag to any tax auditor who is looking at your business.