My recent article on the use of Independent Contractors (IC) as a substitution for full-time employment generated some interesting conversation.  I am not surprised, as it is an arrangement that is under greater scrutiny by the IRS.  Many employers and Freelancers are unclear as to the rules governing this relationship. 

As an employer, you have a reason to be careful in this transaction, as worker misclassification can be a costly mistake.  Your company will be at risk to pay penalties and to remit payroll taxes that would otherwise have been paid.

As a prospective employee, you should understand your rights, in the event that an employer wants you to work as an IC.  You should know that you will be responsible for FICA (payroll) taxes which will run about 15% of your gross earnings.

So, how does an employer ensure that an IC does not become classified by the IRS as an employee?  Likewise, how does a prospective employee protect himself from an employer that does not understand the rules?

I consulted with my HR expert, and reviewed IRS Form SS8 to provide some direction.  The advice I received was: “When you can only direct or control the result of someone’s work and not what will be done and how it will be done, then the worker is typically defined as an independent contractor. These are self-employed workers.  For an employee, you control what work is to be done, when it will be done, where it will be done, and how it will be done.”  This seems to be a pretty good summary of the relationship between Employer and IC.  Remember, I am not an attorney and this is not meant to be legal advice.  For further clarification always seek the advice of an attorney. 

Once you have entered into an agreement with an independent contractor, there are a number of IC work habits you must understand to comply with the IRS and other agencies.  The IRS test considers three broad categories: Behavioral Control – who determines how the work will be done; Financial Control – how the IC is compensated; and Relationship with the Employer; – how the relationship is presented to the public.

The following guidelines should be helpful.

Behavioral Control:

1.     The IC performs their work and provides services without your direction.

2.     The IC does not work at your offices unless the nature of the services absolutely requires it.

3.     The IC is not provided employee handbooks or company policy manuals.

4.     The IC establishes his working hours as he determines to be appropriate.

5.     The IC is not given too much work or short deadlines which require them to work full time for you. 

6.     The IC is not provided ongoing instructions or training.

Financial Control:

1.     The IC is not provided with equipment or materials unless absolutely necessary.

2.     The IC is not paid travel or other business expenses directly.

3.     The IC is not given employment benefits.

4.     The IC is not required to give you formal written reports.

5.     The IC is not invited to employee meetings or functions.

6.     The IC not paid on a weekly, biweekly, or monthly basis as you pay employees.

Relationship to the Employer:

1.     The IC is not provided company business cards or stationery.

2.     The IC does not have a title within your company.

3.     The IC is not referred to as an employee of the company.

4.     The IC agreement may be terminated by either party without liability.

5.     The IC may provide similar services for other companies.

6.     Follow the terms of the IC Agreement, including termination provisions.

7.     If the IC is to be given additional work, execute a new IC Agreement

I’ve been told it is not a single issue that decides the question, so one must look at all of the guidelines. 

Working with Independent Contractors is certain to become more important as we transition into the Digital Age.   Establishing a relationship that adheres to the guidelines will minimize the risk to your business.  Follow the terms of the IC agreement, including its termination provisions.  If in doubt, consult an attorney and/or complete IRS Form SS8.

Thank you for visiting my blog.  I hope you enjoyed my point of view and would like to receive regular posts directly to your email inbox. Toward this end, put your contact information on my mailing list.

Your feedback helps me continue to publish articles that you want to read. Your input is important to me so; please leave a comment.

Jim Weber, President
New Century Dynamics Executive Search
Author of: Fighting Alligators: Job Search Strategy For The New Normal

Current Assignments

1. Strategic Partner – Atlanta-based B2B Professional Services Company – Complete
2. Director of Business Development, Atlanta-based B2B Professional Services Company: New
3. Training Director – Southeastern-based Restaurant Group:  New
4. Senior Accounting Manager – Atlanta-based Manufacturer.  New
5. Controller – Orlando, FL-based Restaurant Company:  New

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Well, it has happened again.  Three famous actors died within the last week; Gene Wilder, John Polito, and Hugh O’Brian.  People often say that Celebrity deaths come in three.  Frankly, with all of the aged actors in the population it is not surprising that three or more could pass at roughly the same time.  I doubt that the timing of those deaths is significant.  On the other hand, I often experience related events occurring in clusters.  When I experience three similar events happening at about the same time, it means that I have a blog topic to explore.  

In the last few weeks,  I have experienced another cluster of similar events.  I have made three new, unrelated connections from the healthcare sector.  Two of these people have become clients, while the third is someone I am helping network into a new situation.  These connections are interesting as healthcare is not my primary focus.

I met Patrick first.  He is an entrepreneur and senior executive with a wellness start up.  He needs help crafting his personal public relations material, including a resume and bio.  He is seeking funding to build his business, and  these tools are important to lenders.   Next, he wants me to do the same for his partners.

Lisa is a business development executive who I met in connection with one of my assignments. Originally from the Atlanta area, she has recently returned after living out-of-state for thirteen years.  Whereas she is poised and confident, with a lot of experience in the healthcare sector, she didn’t have the particular background my client requires.  Lisa may not have been a fit for that job.  However, she is someone I want in my network.   I am more than happy to introduce her to people who can help her in her job search. 

Steve is a new client.  He is a senior level IT executive, whose career has focused on serving the healthcare sector.  He is an entrepreneur who built one company and sold it for a hefty sum twenty years ago.  Steve is looking to find an entrepreneurial situation where he can make a meaningful contribution.   He was referred to me by his executive coach, who is a close friend  of a client.    Steve needs help with his resume and bio, as well as networking connections.  He also needs help crafting his career plan.     

Central to all of these communications is my close friend, and healthcare maven, Sallie.  She has had a successful business development career in healthcare.  She has worked for insurance companies as well as wellness companies.  She is an excellent networker who has been very helpful to my referrals.  Naturally, Sallie is my go-to person in the healthcare field.

So, what does all this mean?   Is someone trying to tell me something?  I think so, but what is the message?  Is it that healthcare is a segment that I need to penetrate?  Or is it the need to provide more individual coaching services, helping people with their career management needs?  Or does it mean that I need to consider new consulting opportunities in this field?   How does all this dovetail with the concept of my book, “Fighting Alligators, Job Search Strategy For The New Normal?”  Currently, I am working on a project to install a recruiting, selection, and onboarding program for a small, family-owned company.   This assignment may be the genesis for a new line of business.

I’ve often said that if you listen to signals from the market, you will know where your skills are needed. The key is to acknowledge the signals. Well, I’m listening.  I’m just not clear as to the message.  I am certain there is an opportunity to explore.     I will find it, eventually.

       
Thank you for visiting my blog.  I hope you enjoyed my point of view and would like to receive regular posts directly to your email inbox. Toward this end, put your contact information on my mailing list.

Your feedback helps me continue to publish articles that you want to read. Your input is important to me so; please leave a comment.

Jim Weber, President
Author of: Fighting Alligators: Job Search Strategy For The New Normal
New Century Dynamics Executive Search

Current Assignments

1. GM, Private Club based in Southeast,  Confidential Search:  New
2. Director of Business Development, Atlanta-based B2B Professional Services Company: New
3. Training Director – Southeastern-based Restaurant Group:  New
4. Senior Accounting Manager – Atlanta-based Manufacturer.  New
5. Controller – Orlando, FL-based Restaurant Company:  New

Last week I drove to Birmingham for lunch. This visit was long overdue. One of my best clients has a restaurant in Birmingham, so it was finally time to check it out. The trip from Johns Creek, GA took about three hours, having left after rush-hour. I arrived 11:45 a.m. Birmingham time. Even then the restaurant was busy, with more guests following me. I took a seat at the bar and was greeted by Teresa. She offered me a warm welcome and asked if I had been there before. I told her that I had not, but had long planned to do so. Teresa promptly explained that the restaurant made all of their items from scratch. She went on to say that they specialize in small-plate portions served as they come off the line. She described their special of the day, a pulled-pork, barbecue sandwich piled high on a bagel. It sounded luscious, but I was in the mood for something else, Grilled Red Fish Tacos with a side order of black beans and rice. She took my order and left to pour a 12oz Yuengling lager from the tap.

It was very helpful to observe the operation, to better understand their service model. I had a great view of the entire process, including the kitchen. I could easily interact with the server/bartender. It was evident that the employees enjoyed their work. The service was quick, the food was excellent, and the staff was very friendly. The managers were actively engaged in serving the customers, without being obtrusive. Teresa even presented me with her business card, something I’ve never seen before. The back of the card featured a promotional message that listed upcoming specials. During my meal, I overheard Teresa tell another customer about helping open their new restaurant in Charlotte. She talked about that trip with great pride and enthusiasm as if she were the company’s chief evangelist.  I learned a lot from that visit. I came away with a much clearer sense of the culture my client was cultivating. This knowledge will help me as I take on new assignments for them.

The next day I was working with another client, prepping them to interview a potential new hire. I drafted an interview guide to help them learn everything they needed from the candidate. As the issue of cultural fit is important to this client, I crafted some relevant questions.  I made sure that I provided a good selection of open-ended questions designed to get to the heart of the candidate’s capabilities, management style, and ideal work environment.

I have learned that the most difficult part of any hiring decision is to assess the candidate’s fit with the organization’s culture. A good cultural fit is a major determinant of the applicant’s likelihood of success in any position. Probing this issue may be the most useful line of questioning in any interview. It is often the least well understood.

To make an appropriate assessment as to any job applicants cultural fit, the employer must first understand their company’s values and the attributes of their culture. For many businesses, especially smaller entrepreneurial firms this is a neglected matter. Although the company may tell you what’s important to them as a brand and attributes they value, often they don’t have processes in place to manage their culture. As a result, their ability to compare a job seeker to their corporate values becomes problematic. For employers looking to hire people that fit the culture, begin by understanding your values and manage them proactively. For job seekers, be sure to validate that your needs and values align with the target company’s culture.

Thank you for visiting my blog.  I hope you enjoyed my point of view and would like to receive regular posts directly to your email inbox. Toward this end, put your contact information on my mailing list.

Your feedback helps me continue to publish articles that you want to read. Your input is important to me so; please leave a comment.

Jim Weber, President
Author of: Fighting Alligators: Job Search Strategy For The New Normal
New Century Dynamics Executive Search

Current Assignments

1. GM, Private Club based in Southeast,  Confidential Search:  New
2. Director of Business Development, Atlanta-based B2B Professional Services Company: New
3. Training Director – Southeastern-based Restaurant Group:  New
4. Senior Accounting Manager – Atlanta-based Manufacturer.  New
5. Controller – Orlando, FL-based Restaurant Company:  New

Thank you for visiting my blog.  I hope you enjoyed my point of view and would like to receive regular posts directly to your email inbox. Toward this end, put your contact information on my mailing list.

Your feedback helps me continue to publish articles that you want to read. Your input is important to me so; please leave a comment.

Jim Weber, President
Author of: Fighting Alligators: Job Search Strategy For The New Normal
New Century Dynamics Executive Search

Current Assignments

1. GM, Private Club based in Southeast,  Confidential Search:  New
2. Director of Business Development, Atlanta-based B2B Professional Services Company: New
3. Training Director – Southeastern-based Restaurant Group:  New
4. Senior Accounting Manager – Atlanta-based Manufacturer.  New
5. Controller – Orlando, FL-based Restaurant Company:  New

As mentioned in my previous post, I am preparing for a September presentation to our local BENG Chapter.  My audience is composed of Senior Executives in  transition and career development professionals.   These folks are savvy professionals who understand business strategy.  My objective is to help them understand the playing field in “The New Normal” to become better prepared to evaluate their options.  I expect to learn from them as well.  The title for my presentation/discussion is “Improvise, Adapt, Overcome.”  I have it on good authority that this is a motivational phrase used by the Marines.  You may recall Clint Eastwood’s character in the movie “Heartbreak Ridge,” Gunnery Sergeant Highway, used this phrase often while training his Recon Marines.  This title seems appropriate. 

At sea level, it seems easy to understand “The New Normal.”  We are in a period of slow growth, and historically low workforce participation.  The current administration has focused on adding new regulations to business, a disincentive to growth and employment.  Notwithstanding the officially reported unemployment rate of 4.9%, recent College graduates, saddled with heavy debt cannot find jobs.  Many employees are working multiple, minimum wage jobs to make ends meet.  Productivity, the engine for wage increases, has been low to nil.  Globalism has moved manufacturing facilities to lower-cost, developing countries.  The good news is that inflation isn’t much of an issue, and the cost of petroleum products is very low.

If one looks at the environment from a broader perspective, the effects of the Digital Revolution become more evident.  The Digital Age is about increased automation (productivity) and connectivity (communication).  This powerful combination should lead to continued innovation and social change.  We are becoming more connected via the internet.  Systems and applications are helping companies become more productive, requiring fewer employees.  Many occupations are fading away.   The ranks of the long-term unemployed may be growing into a permanent underclass.    Job tenures are shrinking to the point that soon, the average will be close to two years.  By 2020, it is predicted that 25% of workers will be 1099 employees.    

The Bank of England recently presented a report predicting the occupations likely to be impacted by automation.  Sectors they forecast to be most impacted are skilled trades; caring, leisure, and other services; sales and customer service; process, plant, and machine operatives; Associate professionals and technical; administrative and secretarial.   Occupational categories less likely to affected by automation are professionals, managerial, directors, and senior executives.  Also, occupations that require a lot of creativity and human interaction, like interior design and decorating may be more difficult to automate. 

The outlook I just presented seems bleak, however, it is not all bad news.  Just take a look at CNBC’s Disrupter 50.  A lot of innovation is occurring in the fields of  Bio-Technology/Food Technology; Space Travel; Transportation/Logistics; Intelligence/Marketing Research; Financial Services; Cyber Intelligence/Warfare; and Telecom.  This information points to opportunities for managing your career.

So, what does this mean for employment?   Occupations requiring a high degree of an interpersonal transaction will still be in demand.  Their tools and support will become more automated, so they will need less staff to support their services.  Senior Executives, Planners, and highly creative personnel will likely be in demand, but here again, they will have more tools and less need for support staff.  The trend to flatter organizations will continue, reducing the opportunity for middle management.  The ranks of 1099 employment base will swell requiring government intervention to support these folks.  The demand for professionals with STEM backgrounds will continue to facilitate innovation.    We are moving rapidly into an “ad hoc” employment paradigm.  We must adapt to the Freelance Economy.

So what of my fellow Boomers?  Throughout our careers, we have learned to improvise, adapt, and overcome.   We have the skill set to adapt, but I wonder if we have the mindset.