working with independent contractors 7th (2011)

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Working with independent contractors / by Stephen Fishman. — 7th ed. p. cm. Includes index. Summary: “Helps businesses of all sizes hire and work with independent contractors legally, from creating a valid contract to protecting a company’s intellectual property.  e CD provides dozens of forms and agreements.  e 7th edition is updated to refl ect changes in IRS and Department of Labor rules and regulations.”—Provided by publisher. ISBN-13: 978-1-4133-1398-7 (pbk.) ISBN-10: 1-4133-1398-1 (pbk.) ISBN-13: 978-1-4133-1574-5 (epub e-book) 1. Independent contractors—Legal status, laws, etc.—United States—Popular works. 2. Contracts for work and labor—United States—Popular works. 3. Independent contractors—Legal status, laws, etc.—United States—Forms. 4. Contracts for work and labor—United States—Forms. I. Title. KF898.F57 2011 346.7302'4—dc22 2011002080 Copyright © 1996, 1997, 2000, 2003, 2005, 2008, and 2011 by Nolo. All rights reserved.  e NOLO trademark is registered in the U.S. Patent and Trademark Offi ce. Printed in the U.S.A. No part of this publication may be reproduced, stored in a retrieval system, or trans mitted in any form or by any means, electronic, mechanical, photocopying, recording, or other- wise without prior written permission. Repro duction prohibitions do not apply to the forms contained in this product when reproduced for personal use. For information on bulk purchases or corporate premium sales, please contact the Special Sales Department. Call 800-955-4775 or write to Nolo, 950 Parker Street, Berkeley, California 94710. Please note We believe accurate, plain-English legal information should help you solve many of your own legal problems. But this text is not a substitute for personalized advice from a knowledgeable lawyer. If you want the help of a trained professional—and we’ll always point out situations in which we think that’s a good idea—consult an attorney licensed to practice in your state. Acknowledgments Many thanks to: Barbara Kate Repa, Amy DelPo, Marguerite Fa-Kaji, and JinAh Lee for their superb editing. Jake Warner for his editorial contributions. Fred Daily for many helpful comments on federal tax law. Ellen Bitter for preparation of the interactive forms. Julie Shawvan for the helpful index. Robert Wells for thorough proofreading. About the Author Stephen Fishman is a San Francisco-based attorney who has been writing about the law for more than 20 years. Among the many books he has written for Nolo are Working for Yourself: Law & Taxes for Independent Contractors, Freelancers & Consultants; Consultant & Independent Contractor Agreements; Home Business Tax Deductions: Keep What You Earn; and Deduct It! Lower Your Small Business Taxes. Downloading Forms and Other Materials  e printed version of this book comes with a CD-ROM that contains legal forms and other material. You can download that material by going to www.nolo.com/back-of-book/HICI7.html. You’ll get editable versions of the forms, which you can fi ll in or modify and then print. Table of C ontents Your L egal Companion for Working With Independent Contrac tors 1 1 Benefits and Risks of Working With Independent Contractors 3 Benefits of Using Independent Contractors 4 Risks of Using Independent Contractors 8 2 e Common Law Test 11 When a Legal Test Is Necessary 12 e Right of Control Is Key 14 Factors for Measuring Control 15 3 How the IRS Classifies Workers 29 Four Steps to Classification Under the IRS Rules 30 Step 1: Check Statutory Independent Contractor Rules 35 Step 2: Analyze the Worker Under the Common Law Test 38 Step 3: Check Statutory Employee Rules 62 Step 4: Check the Safe Harbor Rules 70 4 IRS Audits 89 Why Audits Occur 90 Audit Basics 90 e Classification Settlement Program 98 IRS Assessments for Worker Misclassification 101 Penalties for Worker Misclassification 108 Interest Assessments 110 Criminal Sanctions 111 Retirement Plan Audits 111 Worker Lawsuits for Pensions and Other Benefits 113 [...]... owner of that property Hiring independent contractors can provide many benefits to you, both personally and professionally Putting this book’s lessons into practice, you can pursue such working relationships with confidence, knowing that your rights are properly protected l 1 C H A P t e r Benefits and Risks of Working With Independent Contractors Benefits of Using Independent Contractors 4 Financial... employees, rather than as independent contractors The more taxes an employer pays, the more funds the government receives This doesn’t mean that you can’t hire independent contractors; it just means that you should know the guidelines the government uses to 2  |  Working With Independent Contractors classify workers, so that you can prove that the independent contractors you hire should not be considered... Contractor’s Screening Documents 315 Independent Contractor Questionnaire 317 Documentation Checklist .319 Worker Classification Checklist 321 I Index 325 Your Legal Companion for Working With Independent Contractors M any people hire independent contractors for help at home or at work Independent contractors are not your employees— they have... eliminating the time and expense of training By using 8  |  Working With Independent Contractors ICs, you can expand and contract your workforce as needed, quickly and inexpensively Risks of Using Independent Contractors After reading about the possible benefits of using ICs, you might be thinking: “I’ll never hire an employee again; I’ll just use independent contractors. ” But be aware that there are some substantial... Strategies for Avoiding Trouble 205 Hiring Incorporated Independent Contractors 206 Employee Leasing .214 11 Procedures for Working With Independent Contractors 223 Before Hiring an IC 224 While the IC Works for You 229 After the IC’s Services End 233 12 Independent Contractor Agreements 245 Using Written Agreements... vacation and health insurance Federal Payroll Taxes Employers must withhold and pay federal payroll taxes for employees They must pay a 7.65% Social Security tax and a small—usually 0.8%— federal unemployment tax out of their own pockets In addition, Chapter 1  |  Benefits and Risks of working with independent contractors  |  5 employers must withhold Social Security taxes and federal income taxes from their... Hiring 7 risks of Using Independent Contractors 8 Federal Audits 8 State Audits 8 Loss of Control 9 Loss of Continuity 9 Restrictions on Right to Fire 10 Liability for Injuries 10 Possible Loss of Copyright Ownership 10 4  |  Working With Independent Contractors T here are many benefits... 23 Working Full Time 23 Oral or Written Reports 23 Integration Into Business 24 Skill Required .25 Worker Benefits 26 Tax Treatment of the Worker .26 Intent of the Hiring Firm and Worker 27 Custom in the Trade or Industry 27 12  |  Working With Independent Contractors A worker does not become an independent. .. or constitutes a breach of contract Wrongful termination laws vary from state to state Under some Chapter 1  |  Benefits and Risks of working with independent contractors  |  7 circumstances, for example, it might be a breach of contract for you to fire an employee without good cause To guard against wrongful termination claims, employers must carefully document the reasons for firing an employee,... 18.5% do professional specialty jobs; and 17.3% are in sales Using an independent contractor instead of hiring an employee gives you flexibility (the IC works with you periodically or only once, instead of all the time), and it is financially attractive With employees, you have to withhold and pay state and federal income taxes, along with Social Security and Medicare taxes; and you need to pay for unemployment . Companion for Working With Independent Contrac tors 1 1 Benefits and Risks of Working With Independent Contractors 3 Benefits of Using Independent Contractors 4 Risks of Using Independent Contractors. PRINTING Fishman, Stephen. Working with independent contractors / by Stephen Fishman. — 7th ed. p. cm. Includes index. Summary: “Helps businesses of all sizes hire and work with independent contractors legally,. Risks of Working With Independent Contractors Benefits of Using Independent Contractors 4 Financial Savings 4 Reduced Exposure to Lawsuits 6 Flexibility in Hiring 7 Risks of Using Independent Contractors