Q: In last week’s column, you listed some “do’s” and “don’ts” regarding controls our agency may have in our relationships with independent contractors (ICs). Your basic directive was that the working relationship between the IC and customers cannot be subject to controls on how, what and where to sell trips, but the working relationship between the host and the IC can be monitored to prevent fraud, embezzlement, etc. . You said, “You can’t require the sale of products from preferred vendors…you can’t assign work hours, and you can’t assign production quota or whatever. On the other hand, you may likely have rules that… require compliance with billing procedures to ensure accurate and timely allocation of commissions, prohibit poaching of your customers and employees, prohibit the transfer of pending reservations to another host, and control the use of your marks Can you give other examples of do’s and don’ts?
A: Here’s a good list of “don’ts” based on the current IRS test, which lists factors that tend to make a relationship more of an employment relationship. Although the IRS does not enforce its rule very actively, and although the state tests tend to be different, the IRS rule provides a useful list of rules and policies to avoid:
- When and where to work.
- What material to use.
- What assistants to hire.
- Where to buy supplies and services.
- What work should be done by a specific person.
- What order or sequence to follow.
- Mandatory training on how to perform the services.
- Reimbursement of all business expenses.
- Ensure that the worker cannot suffer financial loss.
- Limits on worker’s ability to sell to customers.
- Offer benefits such as insurance, a pension plan, vacation pay or sick pay.
- Permanent rather than fixed term contract.
The IRS stresses that no single factor will be determinative, so there could be a small number of exceptions at a host agency.
Another good list of “don’ts” is published by the New York State Department of Labor, which states that companies cannot:
- Dictate when, where and how they perform the services.
- Provide facilities, equipment, tools and supplies.
- Directly supervise services.
- Set working hours.
- Require exclusive services.
- Set the rate of pay for assistants.
- Require attendance at meetings and/or training sessions.
- Ask for oral or written reports.
- Reserve the right to review and approve the work product.
- Evaluate job performance.
- Require prior authorization for absences.
- Have the right to hire and fire assistants.
Unlike the IRS, New York policy is that an IC legal relationship cannot have any of these rules or policies.