The Job Coaches: Advice on contract workers

There are several misconceptions about hiring contract workers. Topping the list is the notion that contract workers have less risk of employment disputes or that they cost less. There is some truth to those statements, but you as the business owner still should take steps to protect yourself and your business.

Should you decide that you want to hire a contract worker, you can minimize the risk of employment disputes by having a Contract Worker Agreement. This agreement should address items such as use of your facility and/or equipment and should spell out exactly what they are hired to accomplish for you. Be careful when putting that part in writing. For example, as a consultant, I have agreements with my clients, and we will list what needs I will meet for each client. But because I am not an employee, it is my decision as to how I will accomplish the needs of the organization.

If I need to address a lack of productivity among the staff, that is stated in the agreement. However, my method of addressing the need is not. I may choose to conduct service training, personality profiling or job shadowing to resolve it. The benefit of the agreement is that the rules concerning your property and the needs are clear.

Also, I would advise you to choose cautiously what you are hiring contract workers to handle. You want to be very careful with confidential information or trade secrets. If you have a contract worker who will be privy to sensitive information, you may want to consider having a confidentiality agreement between the two of you.

In some cases, the cost of using a contract worker is less than hiring an employee, but this is not always the case. It depends on what the person does and what is determined or agreed upon between the contract worker and the business owner. There are several factors to consider, such as whether the need is ongoing.

Lastly, not every position qualifies as one that can be held by a contract worker.

Keep this rule in mind from the IRS: "You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed." An example of a position that typically would not qualify as a contract employee is a cashier.

Here are the "common law rules" directly from the IRS website (www.irs.gov) to provide some clarity. Facts that provide evidence of the degree of control and independence fall into three categories:

--Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

--Financial: Are the business aspects of the worker's job controlled by the payer? (These include things such as how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

--Type of relationship: Are there written contracts or employee-type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue, and is the work performed a key aspect of the business?

Businesses must weigh all of these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no magic or set number of factors that makes the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors that are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and, finally, to document each of the factors used in coming up with the determination.

If you are still unsure, you can use a form from the IRS website to inquire about specific responsibilities to determine if the individual should be an employee or a contract worker.

Pat Eardley is a human resources adviser with more than 16 years' experience in human resources management. She supports small-business owners, allowing them to have more time by focusing on creating a successful business environment for them and their employees. Find out more at www.pateardley.com.The Job Coaches are experienced volunteers from the Center for Women's Job Counseling Program. Ask them questions by calling 763-7333 or emailing info@c4women.org. If you would like further assistance, make a counseling appointment; a donation of $35 is requested.