Hiring and the Law —
Independent Contractor Versus Employee? (2)

Devora L. Lindeman, Esq., Partner at Greenwald Doherty LLP, is providing us with insight and information regarding the hiring process. Ms. Lindeman is a management-side employment lawyer and has exclusively represented managers and companies in federal and state agencies and courts with regard to their labor and employment needs for many years.

Questions addressed to Ms. Lindeman may be addressed in this column.

Hiring and the Law
By Devora L. Lindeman, Esq.*

Question: I need to hire a PR person, but I’d like to try out a candidate as an independent contractor for a while and then, if it works out, bring him or her on as a full time employee. Can I do that?

Answer: Generally, it is not prudent for a business to hire an individual as an independent contractor in a position for which you would hire an employee. Whether a person providing services for your company is properly classified as a contractor or an employee is not up to you—there are laws and regulations that govern that classification. When you get it wrong, a number of government agencies can impose fines, fees and penalties on your business, and this would best be avoided. For this reason, it may not be proper for this PR person to be an independent contractor.

Whether an individual is an independent contractor or an employee is going to depend on a number of factors, but the most important one is usually the degree of control you impose over when, where and how the person delivers services for your company. Think of someone you may hire to paint your house or apartment. You tell the painter you’d like him or her to be there on Tuesday. The painter says no. But he or she can be there on Thursday. The painter will tell you what you need to pay for the paint job. And, if you don’t like it, you can find another painter. The painter advertises painting services to the world at large and you found the painting company on Angie’s List or through a recommendation. That’s an independent contractor.

If you are going to tell the PR person that he or she needs to work Monday through Friday from [9:00][5:00], with some networking events in the evenings at which you will require attendance, that you expect the PR person to perform certain functions and attain certain products or deliverables, and that the salary is x . . . that’s an employee, not an independent contractor.

When you bring someone on board as a contractor for some number of months, and then transition them to employee status during the same calendar year, you will need to provide that person with a 1099 for payments as a contractor, and a W-2 for payments as an employee. When the IRS receives a 1099 and W-2 for the same person, from the same company, in the same year, that acts as a red-flag—one of those classifications was likely incorrect (and for the most part, it was the contractor portion). Additionally, the Department of Labor will be concerned because the company would not have paid unemployment insurance taxes, or workers’ compensation contributions, for the contractor portion of the person’s working time.

When the IRS or Department of Labor investigates a potential misclassification situation, they don’t just focus on that one individual. Rather, they will seek to investigate everyone who works for your company to determine whether those individuals were properly classified.

Additionally, the company could have further problems if the “contractor” does not work out. When you terminate the contracting situation, it is possible that the “contractor” could then apply for unemployment insurance claiming that he or she was an employee. Or if the “contractor” gets hurt on the job, and files a workers’ compensation claim, there will be issues because he or she will not be on the company’s worker’s compensation policy and you will be litigating that individual’s status.

Even if you have an independent contractor agreement saying the person is not an employee, Unemployment (or Workers’ Comp) will look to the reality of the situation and the degree of control the employer had over the individual’s work. Based on that, as well as on other factors, the agency will determine whether the person was really a contractor or if he or she was an employee entitled to the claimed benefits.

For these reasons, it is best to use the hiring process to make determinations about prospective applicants, rather than counting on a “trial period” as an independent contractor. The successful candidate for this PR position should be brought on as an employee, not a contractor. If the employment of this individual is not working out, the company can opt to performance manage the employee or swiftly let the poor performing employee go. Either option is likely less risky than treating someone as an independent contractor when he or she is really an employee.

*Ms. Lindeman is a Partner at Greenwald Doherty LLP, a law firm that exclusively represents businesses in all aspects of labor and employment law.  These columns are intended to be general information regarding the topic discussed and are not to be considered legal advice regarding a specific situation. Contact a management-side employment attorney familiar with the law of your jurisdiction for specific advice.  Ms. Lindeman is admitted to practice law in NY and NJ and may be contacted at DL@greenwaldllp.com.  She is under no obligation to respond to reader inquiries personally, but may answer general employment law questions through this column.

© 2011 Greenwald Doherty.  May not be reprinted without permission.

To see how our employee test can help you bring better people on board watch this three minute video.

If you have ever interviewed someone and later discovered a "different" person is working for you, check out our new book How To Hire The Right People.

How Would They Feel About Being Paid Too Much?


Listen to the Hiring Tip Here

I’ve always wondered something about professional athletes. This happens in some sports more than others, so let me set the scene for you.

A football player agrees to a five-year contract for ten million dollars. After the third year, he feels he’s worth more, and he wants to re-negotiate his contract. His first three years were superb. He had excellent statistics and he feels he should “get a raise” now. So he informs management he wants to be paid more than the amount agreed upon in the contract.

Let’s say it gets to the point where he’s actually demanding more money. He puts it simply to management:

“Revise my contract and pay me more, or I’ll sit out and not play at all.”

Management responds with:

“We think the world of you and we’ll be more than happy to negotiate a new contract when your current one ends in two years. However, we’d like you to fulfill your agreement for the next two years.”

Now, let’s say our player decides not to play (which does happens in the sports world), and he doesn’t come in to practice either. He has basically told the team, “You want me to come to practice and get ready for the upcoming season, then pay me the additional money that I believe I’m worth.”

This is a very interesting scenario. The football player has signed his name to a five-year contract and has agreed to play for five years for ten million dollars. After three years, he’s performed really well and he has helped the team.

So what’s wrong with this picture?

Well, from where I stand, there are two things to consider here:

    1. First of all, our guy signed a contract. He made an agreement to play for five years at a particular salary. Now he feels he’s worth more and very possibly is, but he did make an agreement. He signed this agreement. What are agreements worth these days?


  1. While you’re thinking that over, let’s also consider this next point. What if our player had performed poorly for the first three years? What if his performance was nowhere near what was expected of him? What if it was common knowledge that he was being grossly overpaid? Does this player step forward and say to management, “Guys, you trusted me with a five-year contract and ten million dollars to perform at a certain level, and I know that I haven’t come close to that level. I would like to be paid less for the two remaining years on my contract. Or I’d like to return some of the money you’ve paid me so far because I don’t feel I’ve honestly earned it.”

Whoah! Now that’s an extraordinary communication to receive from a professional athlete or really from anyone in the business world.

But should it really be that extraordinary?

Why is it okay for our football player to stop working altogether and demand that management give him more money when he has agreed, in writing, to give his very best for five full years? At the end of those five years, he and the team can certainly get together and discuss the future.

When someone is under contract to do X, why is it okay for this person to cast the validity of the contract aside when he feels he deserves more BUT, if he performs poorly, the idea of paying some back or getting less isn’t really an option?

That was a long-winded sentence, but you get the idea.

And how is all of this a “hiring tip”? Well, you might consider presenting the above scenarios to a potential staff prospect. Ask them to consider both scenarios: having performed much greater than expectations and also far less than expectations. Ask them for their views on the two scenarios.

This may produce some valuable insights for you.

To see how our employee test can help you bring better people on board watch this three minute video.

If you have ever interviewed someone and later discovered a "different" person is working for you, check out our new book How To Hire The Right People.

Don’t Make Promises You Can’t Keep

Listen to the Hiring Tip Here

Sometimes we like a particular candidate so much, we want to promise them the moon. We’re worried if they don’t commit to working with us, they’ll head down the road and work for another company, possibly a competitor.

Examples of promises could be:

“You’ll have a steady progression of raises.”

“There’s no way we would fire you. As a matter of fact, we rarely fire anyone here.”

“You’ll always make more money than the industry norm for your position.”

“You’ll always have these perks.”

Are you 100% sure of any of those promises?

Your new recruit might do fantastic but if the company hits very hard times, you may not be able to keep that progression of raises intact.

You always want to keep the door open to be able to dismiss ANYONE. Even with the best pre-employment screening,  a new employee may not pan out and may need to be let go at some point up the line. Something could happen in their personal life that adversely affects their work. You may need to downsize. A number of things could happen whereby you’d need to end someone’s employ with you. Do not promise that away.

As far as always paying someone more than the industry norm, well who knows what that industry norm will be six months or two years down the road. Don’t box yourself in.

Promising the person they’ll “always have these perks” is, well, just foolish. Frankly, all of the promises above are foolish. You’ve limited your company’s ability to act with any flexibility up the line.

If you believe the person will be a tremendous asset and you want them to come aboard, there are finite offers you can make that do not restrict your ability to act later on.

To see how our employee test can help you bring better people on board watch this three minute video.

If you have ever interviewed someone and later discovered a "different" person is working for you, check out our new book How To Hire The Right People.

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