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Vol. 72, No. 7, July 1999

Tips to Protect an Employer

As the preceding discussion makes clear, there is no surefire way to guarantee that an employer is correctly classifying its workers as independent contractors. To increase the likelihood of correct classification, employers should develop a written contract that clearly lays out the terms of the relationship, and treat its workers as independent contractors. In drafting any such contract, consider the following checklist:

• State explicitly that the worker is an independent contractor, not an employee.

• Make the independent contractor's company the party to the contract, even if the worker is the sole proprietor of his or her own company.

• Specify that the employer will pay a lump sum amount for the work performed, rather than on an hourly, daily, or weekly basis.

• Specify that the worker is not entitled to receive any benefits from the employer or to participate in any employee benefit plans.

• Specify that the employer will not pay for or reimburse expenses such as supplies, equipment, office space, staff, or assistants (though such costs may be built into the total cost of the contract).

• Avoid instructions regarding how the finished product should be assembled or when interim steps should be completed.

• Do not limit the worker's ability to provide services to other businesses, although you should provide protection for your company's trade secrets or other proprietary information.

• Specify that the contract is for a limited time, and renew or renegotiate the contract as and when necessary.

• Provide for termination of the contract by either or both parties, with a defined period of notice or for cause.

In addition to drafting a contract, take care to treat workers as independent contractors, not as employees:

• Do not provide the worker with an office, name plate, business cards, or uniforms (unless necessary for security reasons).

• If the worker needs an office on site to complete the project, the worker should maintain another address as a business address.

• Do not offer the worker "perks" such as employee discounts.

• Do not include the worker in employer-sponsored events or activities, such as company picnics and parties.

• Pay the worker as you would an outside vendor and issue a Form 1099; do not issue a Form W-2.

• Do not provide training in addition to general orientation, and do not include the worker in any employee training programs.