There was a DC in Dallas who had several clinics and was always getting new Parker College graduates to come to work for him. They would bring their contracts to me to review, which would describe work as an "independent contractor." I would always tell them that, in my opinion, they were not independent contractors, but employees, pure and simple.
I finally called the DC in question and told him that he was going to get in trouble with the IRS if he kept this up, because the contracts he was having these folks sign were inaccurate. He told me that his brother was an attorney, who had drafted the contracts and had assured him that the doctors were independent contractors.
I looked him square in the eye and said, "Well, your brother is dumber than hammered spit!"
About a year later we were together in committee meeting, when he pulled me aside and said that he had just been notified by the IRS that he owed over $100,000 in back taxes, penalties and interest because his "independent contractors" were, in fact, employees!
Primarily, the relationship of employer and employee exists when the business for which the services are performed has the right to control and direct the person who performs the services, not only the result to be accomplished, but also how, when and why the result is accomplished. It is important to understand that it is not necessary that the business direct or control the manner in which the services are performed, only that it has the right to do so.
If this test is met, then whatever you call the relationship (independent contractor; partnership; adventure; joint venture; or agent/employee) is of no consequence to the IRS. There are 20 factors to be considered in establishing if someone is an employee, and if even one of these is met, then an employer-employee relationship is established.
Here are the things to remember when you are trying to figure out if a business, organization or "entity" can safely classify someone as an independent contractor, as opposed to an employee. An employer-employee relationship exists if any one of the following criteria apply:
Instructions: The person is required to abide by the rules and regulations regarding when, where and how the work is to be performed.
Training: The person is required to be trained by another experienced person within the organization, or has to go to meetings or is corresponded with by the business, indicating that the business for whom the services are performed want the services to be performed in a particular manner.
Integration: The services of the person are amalgamated or assimilated into the business operations, indicating that the person is subject to the direction and control of the business; that the success or continuation of the business depends to some extent upon the performance of duties of the person, whereby that person must necessarily be subject to a certain amount of control by the business.
Personal Services: The services for which the business has contracted the person to perform must be done personally, giving the presumption is that the business is interested in the methods used to accomplish the work and the results.
Hiring, Firing, Supervising and Compensating Assistants: The business hires, fires, supervises or pays any assistants, which indicates control over the workers.
Continuing Relationship: The worker and the business have a continuing relationship, even if the work performed occurs at irregular but frequent intervals.
Prescribed Hours of Work: The business establishes set work hours for the people performing the services.
Full-Time Status: The business requires that the worker devote a substantial amount of time for the performance of the services; the business is considered to have control over the amount of time the worker spends working, which restricts the worker from doing other gainful work.
Work on Premises: The duties required by the business are to be performed on the premises of the business, unless the business has the right to control the individual's travel by a designated route, at a certain time, or if the worker has to perform services at specific places.
Order or Sequence Set: The business sets an order or sequence in which the services are to be performed, or merely retains the right to set an order. The inference drawn is that the person is not free to follow his own pattern of work, but must follow established routines and schedules.
Oral or Written Reports: The business requires that the person submit written or oral reports, which implies an established degree of control.
Regular Payment Schedule: The business compensates on an hourly, weekly or monthly basis.
Tools and Materials Furnished: The business furnishes significant tools (adjusting tables), materials (face paper), or other equipment (telephones, fax machines, computers) to the person, who must use those tools to perform the required tasks.
Significant Investment: The person has not invested significantly in the tools, equipment and materials necessary to perform the tasks required, then the inference can be drawn that the individual is dependent on the business for which the services are to be performed.
Who Gets the Profit or Takes the Loss? The person who performs the tasks neither realizes a profit, nor suffers a loss as a result of the performance of the tasks.
Multiple Business Task Performance: The person performs services for more than one business as part of the same service arrangement.
Servicing the General Public: The worker does not have the right to make individual services available to the general public, but can only do so at the direction of the business.
Ability to Discharge: The person can be discharged at any time for any reason, or operates under the threat of dismissal.
Terminability: The person is performing services for a business and can sever that relationship at any time, with or without cause, without incurring any liability.
Don't take the chance of trying to make someone an independent contractor if any of these factors set forth above are in play. It will jeopardize your tax situation with the IRS, and the employee could very well bring on a variety of actions against you that would surely cause you more aggravation and headaches.
Rodney M. Phelps,JD,DC
Dallas, Texas
