Preserving Your Status as an Independent Contractor
by
Attorney Stephen Fishman
Follow these strategies to avoid being reclassified as an employee.
The IRS is always looking to reclassify independent contractors as employees of the businesses it audits. (It gets more money from employees than from contractors, who can deduct business expenses from their incomes. And it gets its money faster from employees, who have to pay taxes every payday through payroll withholding.)
If you're reclassified as an employee, you'll suffer some consequences. For example, the hiring firm may decide not to use you any more because it doesn't want to pay the additional expenses of treating you as an employee. And reclassification as an employee could create additional tax burdens for you, if you have to forego some of the deductions to which you were entitled as an contractor.
So how do you make sure that the IRS and other government agencies (such as a state taxing authority or unemployment agency) classify you as an independent contractor? If you consistently follow the guidelines below, you'll have a good chance of surviving an audit with your contractor status intact.
Retain Control of Your Work
The most fundamental difference between employees and independent contractors is that employers have the right to tell their employees exactly what to do and how to do it. Don't permit a hiring firm to supervise or control you as if you were one of its employees. It's perfectly okay for the hiring firm to give you detailed guidelines or specifications for the results it expects from you. But how you go about achieving those results should be entirely up to you.
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