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Employee vs. independent contractor

by Paul Waldman, USPTA General Counsel

December 1999 -- Why is there so much confusion surrounding the subject of independent contractor and employee? Mainly because you have to make your own analysis, based upon a number of factors laid down by your friends at the IRS. And, unfortunately, one of the factors is not what you and your employer have agreed upon. Your intent is immaterial to the IRS. The IRS will only look at the facts of the employment relationship to make a decision.

Compounding the problem is that the parties often have a different rooting interest. The tennis professional will, more times than not, wish to be an employee. As such, your employer must pay one-half of your social security and, under some circumstances, overtime. And, if you work sufficient hours in a week, you might be entitled to medical and pension benefits. One downside is that, as an employee, you will not be able to pay your taxes quarterly (they will be subject to withholding) and therefore you will not be able to take some business deductions you might otherwise plan on.

Conversely, the employer will generally want you to be an independent contractor. The reasons, of course, are just the opposite of those listed above. In theory, the employer will not be able to control you as closely and, perhaps not be able to count on your services as much. This is the beginning of the confusion, because the employer will often try to have it both ways. He or she will try to exercise some control over how you do your job, and will try to regulate your hours and vacation time. But, because you might be available for other employment, or have your own office, or have your own business cards, you will be called an independent contractor by the employer. In fact, you might even have a contract spelling out that the two of you have agreed that you are an independent contractor, setting forth the extent of control you might have retained. The IRS will still look at the underlying relationship to make its determination.

What about the IRS and its interests? The answer is that the IRS definitely leans toward calling you an employee. The reason is that if you are an employee, the IRS has a better chance of collecting all of the payments, including income taxes, to which it is entitled. In addition, it is ensuring that the employee is receiving benefits, such as overtime.

So we see that the tennis professional would usually prefer to be an employee, the employer would prefer him or her to be an independent contractor, while maintaining control of performance, and the IRS would prefer everyone to be an employee. And a determination will be based on about 20 separate factors, none of which are the intent of the parties. This is a lawyer's or an accountant's dream come true.

Can we find any certainty in this uncertain world? I would do it by analogy, taking the clearest examples of independent contractors, as opposed to employees, and work from there. For me, the most obvious example of a true independent contractor is a lawyer. He or she is available to all clients, is expected to get the legal job done, but is not told how to do it, hours are not set by the client, vacations may be taken at any time, the lawyer's office is not on the premises of the client and office expenses are born by the lawyer.

The typical employee, on the other hand, might be the office worker who must work from 9 a.m. to 5 p.m., has a lunch hour and vacation time determined by the employer, and is supervised at every step in job performance by the employer.

With a tennis professional, it is usually not as simple. What if you are given certain hours, but are free to obtain other work? What if you can take a vacation whenever you wish, except during July and August? What if you retain your lesson fees, but only pay for the court and a small fee for club services? What if you are trained by the head pro, but only for the first two days?

There are many other "what ifs" and they are not all given equal weight. For one, "supervision and control" is supposed to be one major factor. The ability to work for others is another, but remember that you can be an employee at two different jobs on the same day.

Generally, because of the importance of this question as to taxes and benefits, I would advise that you consult with a lawyer or an accountant to obtain an opinion as to your status.

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