This question has come up numerous times in various tech forums among members who evaluate their relationships with their customers and I am surprised how often it is asked. More surprisingly the terms of such a relationship are often confusing to the client as well.
They blame it on the perceived ambiguity of a general description of the term given by the Internal Revenue Service and to a point they are somewhat correct. The IRS paints the term somewhat broadly and its boundaries can be interpreted in more than one way. This very argument is one that is often presented in legal disputes between clients contractors and the government itself and in the end is usually determined how the IRS interprets it on a case by case basis.
But is it that difficult to determine? Is it as broad a term as some say, or can it be more clearly defined with some simple common sense?
I visited a tech forum today concerning a particular issue about client contracts and posted a rather long diatribe to refute certain policies regarding these contracts. To support my argument, I quoted the definition of the term “Independent Contractor” as defined by the IRS directly from the agency’s web site. The statement was not in legalese, but in simple layman terms. After comparing the statement to examples, it was not that difficult to understand at all. It is only interpreted differently depending on which side of the fence you sit on and what you have to gain or lose from it, the client or the contractor. In other words, taken literally it is says what it says This is the way the IRS looks at it. To some clients, however, it can theoretically be manipulated to create loopholes in an attempt to gain from it – at the contractor’s expense.
Case in point. Who among us is in business to offer products and services to our clients such as onsite service, system warranties, software and hardware, licensing, tech support, remote support or managed services, networking, integration, what ever – and does not require our customers to sign our contract, delivering the products, services and solutions they need and want on our terms, our schedule and our prices?
Yet those of us who contract our services through other national contractors are required to accept their customers terms and contracts with little or no negotiation or without the ability to require the same of them. We willingly waive all of our rights as Independent Contractors to succumb to the demands of the middlemen companies and their customers.
What does that make us? Do their contracts and terms supercede ours? Did we only waive our rights to our terms? Does that still make us Independent Contractors in the eyes of the law? Or have we now become – at least to the IRS – something else?
The Internal Revenue Service defines an Independent Contractor as follows:
“The general rule is that an individual is an independent contractor if (the person for whom the services are performed) has the right to control or direct only the result of the work, and not what will be done and how it will be done or method of accomplishing the result.” – Source: IRS web site.
http://www.irs.gov/businesses/small/article/0,,id=115041,00.html
According to the IRS, in order to be considered an independent contractor, the client can only dictate the actual scope of the project itself or what work they need the contractor to perform. They cannot tell the contractor how to do it or dictate the terms of the work.
It is very clear to me. I will let you decide.