Independent Contractor or Employee?

egproductions

egproductions

Veteran
Hello, I don't expect people to be giving me rock solid legal advice here but was hoping to get a general consensus. When I hire someone to freelance on a wedding as a shooter are they considered an independent contractor or an employee of my company. I've looked at the IRS website around this matter and I'm still struggling with it. I know I can submit a form to the IRS to make the determination but thought I was ask around first.

My guys bring some of their own gear including cameras usually and sometimes I give them some of my gear to use. They work for various other production companies and I hire them maybe 10 times a year for a weddings/events/shoots. I give them some direction but in general they have their own shooting styles and skills. I don't train them formally but of course I give them pointers on occasion of what I'm looking for. Currently they all get paid on a 1099 and some of them have thier own corporations while others or sole proprietorships.

I actually hired one of my guys full time recently and while getting a quote for workers comp, my insurance company told me that I'm going to get audited at the end of the year to see how much all my freelancers made and will have to pay into my premium based on a total amount paid to contractors. I questioned this policy and they said that if the contractor is insured they will be considered as an independent contractor but if they aren't insured they are considered my employee. I was pretty suprised that being insured is a determining factor of whether someone is considered an employee of mine or not. Why should I pay for workers comp for people who aren't my employees and some who even have their own corporations? I live in NJ btw.
 
Unless they have their own business entity (LLC, Corp), they should be classified as an employee, so far as the IRS is concerned.
 
I don't know if that is true. A contractor can always hire a sub-contractor, and even gie direction as to how the work is to be performed. Just compare this to a General Contractor building a house and hiring a plumber as a sub-contractor.

I also question the insurance as a deciding factor. We all are "self-insured" in that if we don't have an insurance policy we take the risk on ourselves should anything happen. In certain situations there are regulations as to who and what entities are required by law to carry various forms of insurance, such as a owning a car in most states comes with the requirement that you carry some forms of insurance on it. But having or not having the insurance is a matter strictly for that person/entity. I don't see how it affects someone hiring/contracting with that person/entity, at least in the question of contractor/employee status.

I am not a lawyer and I don't play one on TV. You may wish to contact a group such as Lawyers For The Arts, who will provide information specifically for such situations.
 
Chris Adler said:
If you direct and control what they produce for you, and must conform to your work schedule, they are employees according to the IRS. This is a great article on the subject.

http://www.abspayroll.net/payroll101-hiring-independent-contractors.html
Click to expand...

I am not a lawyer. I have done my own taxes for the last 10 years as a production
company business owner. I have even been audited (which I prevailed on).
As I understand it, it is NOT as simple as:

'if you direct and control what they produce for you and they must conform to your work
schedule, they are employees.'

I was told the IRS considers a whole list of things, which include the above, but
there is much more to the list for example:
'Do you pay employee benefits such as health, pension and vacation pay?'
'Are business aspects of the job controlled by the payer.'
This includes if the payer supplies tools or if the worker does...obviously
if the worker had his own camera, tripod and gear, that weighs more on the side of
an IC and not an employee. There are no set number of criteria to meet
either way and no one factor stands alone in making this determination.
The IRS will consider all these factors together when making a determination.

Go right to www.irs.gov. There is a whole section on how to determine
if someone is an IC or employee. I have even called their number and talked
to them about it because I wanted to be sure. I recommend doing this. I am sure
that the payroll service guy in the above link knows his stuff, but he also has
a teeny, tiny conflict of interest. Go straight to the source, the IRS website
and call and talk to them if needed. That's why they have a phone number there.
 
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The problem is this is not a black and white issue like many IRS statutes. They consider "factors" and then make a decision. If they can work for other people, decide their own schedule, decide not to do a job for you this week, then come back and do a job next week, they start to look like independent contractors. If they work for you exclusively, if you won't hire them again if they refuse a gig, they start to look more like employees.

There is not one factor, or number of factors that will just conclusively determine the issue. You can't just say, well they are self insured, or they own their own gear, or I don't pay their health insurance, etc. It's all the factors considered together, and then the IRS makes a decision. Very similar to a 1031 Tax Exchange, there are factors involved, but no bright line rule as they say. Another reason we really need tax reform to make it easier on small business people just trying to follow the law.
 
dcarstens said:
Unless they have their own business entity (LLC, Corp), they should be classified as an employee, so far as the IRS is concerned.
Click to expand...

A sole proprietorship is also business entity. It just means you are working for yourself and you don't need to file any paperwork for an LLC, Corp, etc., with yoru local Secretary of State.
 
egproductions,

I assume you asked your insurance company the same questions you are asking us? I agree with some other posters that you should contact an expert because getting a consensus from a bunch of armchair quarterbacks isn't really useful. ;)

Gillvane said:
The problem is this is not a black and white issue like many IRS statutes. They consider "factors" and then make a decision. If they can work for other people, decide their own schedule, decide not to do a job for you this week, then come back and do a job next week, they start to look like independent contractors. If they work for you exclusively, if you won't hire them again if they refuse a gig, they start to look more like employees.
Click to expand...

I agree that it is multiple factors go into it, but even the first part of your example I don't think strongly leans towards IC. As a freelance employee I can work for other people, decide not to work for person X this week but work for person X next week, etc.,. but I'm still classified as an employee (just a temp/freelance one), not an IC.

I think some of the bigger factors are day to day scheduling, do they report to someone that is in a supervisory role, and do they use their own equipment.

Someone mentioned a general contractor and I think that can be a good parallel. If a GC gets a remodeling job and as part of that remolding job all the house needs to get repiped then the GC can sub-contract to a plumber to replace the pipes. Other than sticking to established deadlines the GC isn't going to have any say over how and when the plumber executes the job if the plumber is an IC. The GC will not provide tools, consumable/supplies, a daily schedule (arrive at X, take lunch at Y, etc.,), specific work methods, or in any other way directly control what the plumber does.
 
Yes, but there are parameters the GC can set to which the sub-contractor must abide. The plumber can't show up at 2am and decide to start working. Similarly, if a wedding is supposed to occur during the hours of 2pm - 8pm and a photographer is contracted to cover the event, then the general parameter holds that the photographer be present and working during those hours. The bride hires the photographer as a contractor, not an employee. As I understand it (and again, you should consult a lawyer), if a contractor simply passes along the general parameters of the job (the wedding is from 2-8) then the net party could still fall under the classification of sub-contractor.
 
Not sure where you are, but here's how it is in the UK. A Minefield, but the IR35 test usually gives the clue. I often use the same people, and in many cases, I also cover work for them, so we have the silly situation that I invoice them, they invoice me and it's fine. My sister just retired from HMRC and her advice was quite simple. If HMRC think you are doing it wrong, you need to prove to their satisfaction you are working to their published guidelines, and make your case. Being VAT registered, as I am is one plus point, but in general, they will look at the self-employed person's client list, and look at invoices. For plumbers, charging per hour is standard practice, but for me - in my theatre based work, it's always a half-day, a day, a week, or a specified contract period. My invoices never include anything with an hourly rate, because I don't have one, it's really price per job, and settlement within 30 days - HMRC are also interested in bank accounts - if it's a business account, and what name is it in - very common and simple things, that pretend self-employed people have trouble with. If somebody does some work for me, and they are not really self-employed, then I carry the can - and have to pay employers NI, and possibly even their unpaid PAYE. So I only use proper self-employed people. Taking a chance can be pretty risky. So my favourite people work very similarly. The key seems to be if they can work independently and are legally responsible for what they do. They hold their own PLI and perhaps their own union membership. They issue proper invoices, pay their tax properly, and pay class 2 and 4 NI. My sis says people like this can establish their self-employment status quite easily, but if HMRC have never had tax or NI from them as self-employed, they probably aren't. Up until this year, for me there dual status people too - who would be classed as self-employed for tax, but employed for NI and that is a pain, but luckily common sense has been restored. My big clients require from me my UTR, and this year a few have asked for my accountant to confirm I am self-employed. An email from my accountant satisfied my clients, and my contract simply quotes a price for the job - no hours, no explanation and no job information. So it says I am engaged as a Production Manager from X to X at the inclusive fee of £X. This is a production company who had been advised they did not need to deduct tax and NI from people they engaged on short term contracts by HMRC, and then they changed their mind and charged it back!

I'd suggest that if your prospective cameraman has a PAYE job, and is doing video work on the weekends to supplement income, then you really need to be wary.
 
Mitch Gross said:
Yes, but there are parameters the GC can set to which the sub-contractor must abide. The plumber can't show up at 2am and decide to start working. Similarly, if a wedding is supposed to occur during the hours of 2pm - 8pm and a photographer is contracted to cover the event, then the general parameter holds that the photographer be present and working during those hours. The bride hires the photographer as a contractor, not an employee. As I understand it (and again, you should consult a lawyer), if a contractor simply passes along the general parameters of the job (the wedding is from 2-8) then the net party could still fall under the classification of sub-contractor.
Click to expand...

This is exactly my understanding as well. Think about it, how stupid would it be for
a second shooter to say
'Well the wedding is from 2-8 but I can only work from 9-1 so that's when I will show
up.'

If you are merely 'passing along' the parameters of the job that you(as the general contractor)
have been given.....the party you hire does not (in my understanding of the matter) automatically
become an employee instead of an IC. Scheduling is not some 'be all end all' factor', there are
a bunch of factors they consider. The problem is, it's kind of a complicated question with
no simple answer. Which is a good reason to talk to an expert.
 
Mitch Gross said:
Yes, but there are parameters the GC can set to which the sub-contractor must abide. The plumber can't show up at 2am and decide to start working. Similarly, if a wedding is supposed to occur during the hours of 2pm - 8pm and a photographer is contracted to cover the event, then the general parameter holds that the photographer be present and working during those hours. The bride hires the photographer as a contractor, not an employee. As I understand it (and again, you should consult a lawyer), if a contractor simply passes along the general parameters of the job (the wedding is from 2-8) then the net party could still fall under the classification of sub-contractor.
Click to expand...

Of course if you are hired to cover an event you actually need to show up for the event, but in the case of the plumber there's no reason he can't show up at 2am as long as it's okay with the client and there aren't any existing laws (like noise ordinances) that would prevent it from happening.

I think one of the fundamental questions is, are you hiring someone to create the end product for you or are you hiring someone to help you create the end product? If I run a catering service and sub-contract out the making of a cake I can certainly tell the baker to make me a three tier chocolate with vanilla icing and "Happy Birthday Grandma" spelled out in fresh strawberries on the top and the baker would still be an IC. If I told the baker to come to my kitchen, use my ingredients, use my cooking utensils, and I gave instruction on how to do the job (as opposed to just the end product requirements) then an argument could be made that the baker is no longer an IC but a temporary employee.

Getting back to the OP's specific situation, he says the guys he hires come and go between other productions which really isn't here nor there because freelance/temporary employees do that all the time. The OP also says he provides some gear to the guys he hires which is typically an employer/employee type thing but on the other hand he has he doesn't provide instruction on how to shoot the wedding (just that the wedding needs to be shot) which leans towards IC. So it's seems to squarely sit in the grey area of IC or employee just based on the info provided.
 
There are two parts to the questions: (1) who's considered IE and (2) who should be covered by the workers comp.
RE 1. Most people in the eyes of the law are employees - if for no other reason that in such way the gov't is making more money that way - sound cynical but is also true. So if you get "caught" you will pay up.
RE 2. Even if you hire independent contractors you are required to obtain the proof of their workers comp. This is truly irrational as workers comp is NOT required in certain legal arrangements (for instance the owners of LLC). As the owner of my LLC i'm not required to cover myself with workers comp BUT at the same time if someone is to do business with me (and they were to do things by the book) they could ask for the proof of my workers comp and if i didn't have it (as i don't for myself) then the hiring person would have to provide it for my LLC. This smells to me as an easy way for the gov't to make more money off of us, or as a fail proof way for us to loose in case of RE1.

Soooooooooooooo......

Get a payroll company - they will handle your freelance "employees" and pay their workers comp.
 
I use a payroll company (Ovation), but they informed me that they do not provide worker's comp. if you know of a payroll service that does, I'd love a referral. Otherwise, I'm paying $1200/yr through CA state's program.
 
alaskacameradude said:
I am not a lawyer. I have done my own taxes for the last 10 years as a production
company business owner. I have even been audited (which I prevailed on).
As I understand it, it is NOT as simple as:

'if you direct and control what they produce for you and they must conform to your work
schedule, they are employees.'

I was told the IRS considers a whole list of things, which include the above, but
there is much more to the list for example:
'Do you pay employee benefits such as health, pension and vacation pay?'
'Are business aspects of the job controlled by the payer.'
This includes if the payer supplies tools or if the worker does...obviously
if the worker had his own camera, tripod and gear, that weighs more on the side of
an IC and not an employee. There are no set number of criteria to meet
either way and no one factor stands alone in making this determination.
The IRS will consider all these factors together when making a determination.

Go right to www.irs.gov. There is a whole section on how to determine
if someone is an IC or employee. I have even called their number and talked
to them about it because I wanted to be sure. I recommend doing this. I am sure
that the payroll service guy in the above link knows his stuff, but he also has
a teeny, tiny conflict of interest. Go straight to the source, the IRS website
and call and talk to them if needed. That's why they have a phone number there.
Click to expand...

Earlier this year I had a long discussion on this issue with my accountant. The guy, CPA, with probably close to 40 years of experience. His comments were very close to what alasacameradude said above. In addition, he mentioned one of the most important factors (in his view) IRS considers when making such determinations - existing business practices in the geographic area and in the industry. From what I understood, even if there is no such IRS publication, IRS will never single out any specific individual or business unless IRS has shown and has a record of a cosistent approach towards specific cases in specific areas of taxation.

It's a general thing and goes far beyond the employee vs. independent contractor issue. But getting back to the latter. In our area, which is Washnigton DC, the prevailing practice among businesses and those hired is to treat such help as independent contractors. I do not have any statistics, but virtually everybody goes the independent contractor way. Moreover, IRS, to the best of my knowledge (as well as my accountant's) has never tried to go after such category of people. Namely, actors hired once or twice for one or two productions, crew members in the same situation, etc. Based on this advice, I re-classified a number of folks from employees to self-employed (and they where happy) even if in their contracts they were originally identified as employees (based on who controls whom approach).
 
Patryk_Rebisz said:
There are two parts to the questions: (1) who's considered IE and (2) who should be covered by the workers comp.
RE 1. Most people in the eyes of the law are employees - if for no other reason that in such way the gov't is making more money that way - sound cynical but is also true. So if you get "caught" you will pay up.
RE 2. Even if you hire independent contractors you are required to obtain the proof of their workers comp. This is truly irrational as workers comp is NOT required in certain legal arrangements (for instance the owners of LLC). As the owner of my LLC i'm not required to cover myself with workers comp BUT at the same time if someone is to do business with me (and they were to do things by the book) they could ask for the proof of my workers comp and if i didn't have it (as i don't for myself) then the hiring person would have to provide it for my LLC. This smells to me as an easy way for the gov't to make more money off of us, or as a fail proof way for us to loose in case of RE1.

Soooooooooooooo......

Get a payroll company - they will handle your freelance "employees" and pay their workers comp.
Click to expand...

Workers compensation insurance is a state thing. You need to look at the state law. It's not accidental it's called "workers." In VA where I am, they do not care how and who does it. If you hire and pay "workers" you are ultimately responsible for it according to the Virginia law and it's specific provisions whether you are dealing with employees or independent contractors.

Payroll company, unless it's also an insurance company, cannot provide workers comp insurance.
 
Unfortunately, it's not the accumulated years of experience that matters when dealing with accountants (or lawyers for that matter) but their experience in a specific field of our interest. A very experienced accountant costed my wife thousand of dollars per year in taxes only became he didn't understand intricacies of freelance world.

My current accountant shares my believe: it's all good until you get called up on the red carpet. As much as we want to believe we live in a very orderly society, the law will be "interpreted" by someone and if they have power over us it's up to their interpretation how the case will turn out.

I'm strong proponent of classifying everyone you can as IC but truth is many people don't "feel" as such. I had the conversation with too many people and it's staggering how little they know about taxation or even running a business. The truth is that it's the ones who don't know much that will cause trouble. For instance by trying to get unemployment and using your IC checks from you as their "employment" verification. In turn the Dep of Labor will investigate you.
 
silyn said:
Workers compensation insurance is a state thing. You need to look at the state law. It's not accidental it's called "workers." In VA where I am, they do not care how and who does it. If you hire and pay "workers" you are ultimately responsible for it according to the Virginia law and it's specific provisions whether you are dealing with employees or independent contractors.

Payroll company, unless it's also an insurance company, cannot provide workers comp insurance.
Click to expand...

If you are the IC performing the work - the sole "worker" of your company - you are asked to provide the workers comp to that one "employee" - self - if you are hired as IC by another company. Otherwise the hiring company is obligated to provide the workers comp for your "worker."
 
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