My last post was about working with an office assistant. One huge consideration for me was to be sure that anyone who worked with me would be considered an independent contractor, not an employee. Laws vary by country so everything I am talking about here only applies in the USA.
The IRS has rules that determine whether a worker is an employee. This matters because employers have tax and other obligations to employees. To determine if a person providing a service is an employee, the IRS has some guidelines that concern the degree of control and independence the worker has over their own work.
In my business, I pay people both as office and design assistants and as project partners, and I want to be sure there is no risk that the IRS will consider them employees. I make sure that the worker:
- Takes control over how they do the job (although I may provide instruction on particular tasks, I’m concerned with the end result, not the steps taken to get there)
- Sets their own hours (within the parameters that work for me)
- Offers similar services to others
- Sends invoices for the work they do
- Provides their own tools (computer, software)
- Understands that work is project-based and that there is no guarantee of ongoing work
On a more personal note, I feel ethically obligated to make sure the people working with me set their rates high enough to pay their own taxes and other freelance-related expenses.
There is the flip side to this, too: when I am hired to do work, I want to be sure my relationship with the client clearly makes me an independent contractor, not an employee. It’s better for us both.
For more official information, see this page from the IRS titled Independent Contractor (Self-Employed) or Employee?
Has this happened to you? I’d love to hear your stories about the IRS determining that independent contractors should have been classified as employees, whether you were the employer or the employee.