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How should an employee working on a year-long project be classified?
If I am taking on a new employee to work on a finite project spanning a year, should they be taken on as an independent contractor? A temporary employee? They will be working on site the vast majority of the time,
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5 Answers
Chelsea: One point I wanted to follow-up on for you. If you do decide to hire this individual as an independent contractor (which can make sense if the individual will be working on one dedicated time-boxed project), ensure that you provide a contract and SOW that details exactly the nature of the work the individual will provide to you, the length of the assignment, as well as the terms of the work arrangement. For further protection of independent contractor status, you might want to consider allowing the individual to work off site. If this is not possible, try to ensure that the contractor makes use of his/her own equipment, provides appropriate invoicing to your organization, and works with a high degree of autonomy and self-direction—these factors are all important considerations for the government’s classification of independent contractor status.
If this employee will be working just on one project for a set duration, I would consider them an independent contractor. Think of the situation as hiring a builder to add an addition to your office building that is projected to take one year. You're hiring them for that specific task under contract, and though they are working on-site, they're not an employee of your company.
Dan, I would hire this person as an employee with the timeline in his offer letter. It is very tough proving "contractor" to the government, unless the person has other clients and is really set up to do business.
In reality, there is no "permanent" status.
Data to consider:
1) The Cost. The cost of an employee plus benefits (and unemployment when they leave in a year) versus that of a contractor. Run the numbers and see which is better.
2) The person. If they do not work out as a good resource, contractors are easier to replace. Even if you have an employment contract, person is still going to have hopes of staying on. I think it is more realistic to keep them as a contractor.
3) Contractors. You cannot treat contractors the same as you do employees--no free lunch, no meetings outside their scope of work, no days off with pay, no bonus, going to the ballpark, etc.--nothing outside their contract.
4) Burden of proof/paperwork. There are relatively simple rules that IRS has to follow on contractors (http://www.irs.gov/businesses/small/article/0,,id=99921,00.html). The only time you need to prove this is when the contractor does not pay his or her taxes. Make sure, a) to get a W9, b) they invoice you per contract terms, c) you give them a 1099 for their earnings (there are new IRS rules here). It is best if they are incorporated and have a Employer Identification Number (EIN). If you are concerned go through an agency and let them worry about it.
I hope that helps.
Todd Williams
I think Todd summarized the categores pretty well. Chelsea, I think it will be up to your organization to choose which category fits well with your organization's strategy, culture and how critical the project will be.
I have seen cases in which these 'employee' ended up being hired permanently right after the project. In this case it may be in your benefit to hire them as temps to easen the transition when the time to do so arrives.
All in all there may not be 1 answer to this. It will all depend on variable that one organization faces vs. the other.
Best Regards
Marius
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