Yesterday, the US Department of Labor published an important memorandum restating criteria for determining contractors from employees and concluding that, “In sum, most workers are employees under the FLSA’s broad definitions.” You can read the memo by clicking here.
In the meantime, if you’re pretty sure that your worker is a contractor, or you’ve decided to take the risk of reclassification regardless of the facts, here are some tips for making the contractor classification stick:
1) Keep a file for your contractor and include in it anything that indicates the worker holds herself out as a business. The contractor’s advertising, business cards, proof of insurance, etc. should all go in that file.
2) Set up a contractor agreement and make sure it specifies that the contractor will file tax returns for her earnings and that the principal or company will issue a 1099.
3) Have the contractor set the rate for the job as opposed to the principal.
4) Maintain evidence that the principal’s business is not dependent on the work for day-to-day functioning of its business. You might spell this out in the contractor agreement above, clearly stating that the principal is contracting with this worker because the worker has specialized expertise far afield from the principal’s business.
5) Pay the worker based on submitted invoices rather than a set salary or wage.
Keep in mind that none of the above 5 items will obscure the status of someone who is truly an employee, but they will help the principal prove that he had a good faith basis for classifying his worker as a contractor.