I’ve audited many companies who have proudly testified that they own no employees, and that all of their workers are leased. My answer is always the same, how much control do you have over their day-to-day operations? Sadly to say, I’ve always found that there were moderate to total control over these “employees”. Most small business owners inaccurately assume just because they signed a contract with a leasing agency, then that makes them totally exempt from any liability whatsoever. They simply ignore the fact that these workers are not employees, and thus should not be treated as such. However, if you change some aspects of how you hire these workers, then the relationship will not get blurred between the lines of “employer” and “employee” relationship.
The more control you have over a worker the more that worker appears to be an employee. Therefore you should clearly begin by altering the way you operate in regards to your independent contractor and leased employee’s relationship. First, you should begin by making sure all of your contracts with staffing firms, etc are clearly defined as such:
Negotiating a Contract with a Staffing Firm
If you decide to hire at a staffing agency review the documents carefully, and seek legal advice if needed. However, check for these basic guidelines:
*Make sure the contract is an agreement between you and the agency, and not worker that you are hiring.
*Carefully list issues that protect you from any liabilities that may arise while leasing these workers. Also state any repercussions or penalties that will be taken as a result of any adverse action from the workers.
*Describe all job duties that should be performed by each leased worker.
*Clearly lay out any cause of action that would result in the terminating of the relationship.
*Clearly segregate all responsibilities and services that should be rendered by each party.
*Carefully stipulate who is responsible for providing worker’s compensation, and who has immunity protection.
*Stipulate who is paying payroll, payroll taxes, or benefits.
Negotiating a Contract with an Independent Contractor
The IRS has created a test called the Multi-Factor test. In this test, it ask a series of questions that help them determine whether an independent contractor is being treated as an employee. It would be of benefit that you structure you contract around this test to ensure that you are not blurring the lines. The Multi-Factor Test includes the following:
*Structure the contract between you and the company, not between you and the individual. (This is only done if the independent contractor has a corporation or a limited liability company.)
*Include the fees that will be paid and the due date for all work.
*Specifying that the independent contractor is free to do any other work for other companies.
*Do not pay benefits, payroll taxes, or fill out a any I-9 Forms
*Require that the independent contractor invoices you for their services.
*Call their work “projects” with the freedom to work on those projects at their discretion.