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But Sam Wants to be an Independent Contractor
By VICKY BROWN
But Sam wants to be an independent contractor.
I’ve heard that, or something similar to that, so many times before.
A client needs additional support or skills in their business, and they decide that instead of hiring an employee to do the work – maybe they can get an independent contractor. And it turns out, the person they find actually prefers to be an independent contractor.
So, they’re all set to move forward, then they reach out to me, and I’m tasked with dumping cold water on the whole thing. Because, in fact, it turns out that even though Sam desperately wants to be a contractor – in this role, he doesn’t meet the qualifications.
Now, I’m not going to do a deep dive in this episode about what does and doesn’t qualify as an independent contractor. If you want more information, just listen to the Season 4, Episode 10 podcast.
Listen, I get it. Sam wants to be an independent contractor, and maybe he’s even giving you a lot of pushback about it.
So, why is Sam so set on independent contractor status – well, there is some real, and perceived, upside.
Independent contractors have more control over their taxes. Since you aren’t taking out social security, medicare and income taxes from each paycheck, they get the full amount they’re contracted for. If the two of you settled on $500 a month, then they’ll get a $500 check each month – no deductions.
Of course, the downside to this is it’s all on Sam to properly account for, and pay his tax liabilities. And, well – let’s see how can I put this gently – well, sometimes that doesn’t exactly happen. And even if you are meticulous about it all, you can still find yourself in a bit of quicksand.
For instance, one recent news story recounts how an independent contractor thought she had put aside the appropriate amount for taxes, only to get hit with a $18K bill from the feds and an $8K bill from the state.
“…while it’s easy to do a pros and cons list for both sides – the fact is that the folks who regulate and oversee labor law compliance, are the ones who count.“
Next, independent contractors have schedule flexibility – they can set the day and time they’re available to work, and are free to change their schedule if they wish. Now this plays hand in hand with you not controlling the independent contractor in any way. Their schedule, how they provide the product or service, what tools, hardware or software they use – all that should be completely up to them. The point is that they are engaged to provide that product and or service – and how they do that….well, it should be up to them and their expertise or process.
Now, another thing people feel is a huge advantage – is that they can leave anytime they want to. In fact, when I talk to clients, they make this point as well. Since Sally isn’t an employee, I don’t have to fire her – I can just stop working with her.
And that can be true – if you don’t’ have any type of agreement that says otherwise. You see, when you engage an independent contractor, you’re entering into a business to business arrangement. So you definitely should have an agreement that lays out who does what, what gets paid and when, and what happens if something goes wrong. It should also cover the process for terminating the contract.
Think about it, you don’t want your contractor coming to you in the middle of the marketing plan rollout and simply saying – see ya, not coming back. And there you are, left with half of a rollout, and no idea what to do next.
Whether you’re an entrepreneur jumping into a leadership role, a seasoned business pro with new HR responsibilities, or just starting your HR career – we’ve got the right path to guide you through your HR hurdles.
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Nope, you want to be sure that any exit is an elegant exit. Things are closed out, documentation is transferred, projects are properly finished.
So see, when you look at it like that, that’s why I say ‘perceived flexibility’ to leave. Yes, they can leave, but they have to fulfil the terms of the agreement before they do.
And finally – and this is a huge one – many people who prefer to work as independent contractors are drawn to the possibility for unlimited growth. After all, you don’t have a set salary – you can make as much money as your time and brain power allow. You can work for multiple clients, you can work one on one or one to many. The options are endless.
But – on the other side is the opportunity for loss. And, when you think about it – that makes sense. Because all businesses can make money or lose money – and the same is true for independent contractors. There is no guaranteed income amount. There is no check every 2 weeks. The upside is huge, but so is the down side.
And while it’s easy to do a pros and cons list for both sides – the fact is that the folks who regulate and oversee labor law compliance, are the ones who count. You and the individual may say all day long that they should be an independent contractor, that you have an agreement reflecting the same, that you’re sure you always treat them as an independent contractor.
If the IRS, or Dept of Labor, or a state agency determine they don’t meet the independent contractor qualifications – then you could easily be on the hook for taxes, penalties and all sorts of other nasty surprises.
So, keep all this in mind the next time you’re trying to explain to someone that you need to bring them on as an employee vs. a contractor.
Hopefully it will give you the support you need to get through those sometimes difficult conversations.
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