iamindependent - contractor employment and 1099 compliance

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Companies frequently enter into consulting and contract services agreements and unknowingly expose themselves to otherwise easily mitigated risk and liability. As evidenced by the Vizcaino v. Microsoft case, your company's risk, exposure and liability can be significant.

Employment law is both complicated and extensive, with little or non-existing definitive, hard answers for most tough questions. However, based on past legal rulings that have caused defending companies to pay multi-million dollar settlements or claims, the following types of situations should be examined carefully, or in some instances avoided altogether.

:·	Do not hire a self-employed or self-incorporated independent contractor unless you believe that you can establish beyond a reasonable doubt that the self-employed or self-incorporated independent contractor is compliant.

:·	If you choose to take the risk and hire a self-employed or self-incorporated independent contractor, make sure that the independent contractor does not work 1000 hours, or more, for your company. Here is the reason why [compliments of Contingent Law - http://www.contingentlaw.com/]:

	ERISA [Employee Retirement Income Security Act] is administered by the U.S. Department of Labor. It's general rule regarding permissible exclusions [who may be excluded from participation in a company's employee benefit plan because of various legal criteria] is that an employer may exclude any employee who works less than 1000 hours in a relevant twelve-month period. As a result, "temporary" employees who work forty hours per week for less than a full six-months within a particular twelve-month period are mathematically eliminated. This is not, however, an automatic exclusion. A company's employee benefits plan must have the correct language implementing the intended exclusion or risk having to provide the benefits to temporary and/or part-time employees as well as independent contractors whom a court determines to be common law employees.

:·	Do not use staffing agencies that hire self-employed and self-incorporated independent contractors. Your company could have nearly the same liability as if you hired the independent contractor yourself, and without the added costs. Insist on proof that the independent contractor is indeed a bona fide w-2 employee of your staffing agency.

:·	If your staffing agency sub-contracts to third parties, insist on proof that the consultant or contractor performing services for your company is in fact a bona fide w-2 employee of the sub-contractor.

:·	When selecting a staffing agency or a contractor employment service, insist that your service providers make health and medical benefits, and retirement plans such as a 401(k) available to their consultant employees.

:·	Whenever feasible, try to structure payment to your service provider based on some sort of deliverables or milestones, as opposed to by the hour or by the day. Also, whenever possible, try to have the service provider use their own tools and pay their own expenses as opposed to your company reimbursing the service provider for its expenses of providing services to your company.

If you have additional questions on how your company can avoid risk and exposure, and consequent liability, feel free to contact us. We can help you structure arrangements where your risk and exposure is limited, if not eliminated altogether.