James Irving presented on the differences of classifying an employee as an employee, independent contractor or intern and why it matters. He also provided guidance on what employers should to reduce the risks associated with misclassification.

1. EMPLOYEES
vs.
INDEPENDENT CONTRACTORS
October 9, 2013
James V. Irving
Bean, Kinney & Korman, P.C.
2300 Wilson Boulevard, 7th Floor
Arlington, VA 22201
(703) 525-4000
www.beankinney.com

2. James V. Irving
Shareholder at Bean, Kinney & Korman, P.C.
 Practice Area Focus – Business,
Corporate, Employment & Litigation
 25 years as a practicing attorney
 Education - College of William &
Mary, Marshall-Wythe School of
Law, J.D.
 Bar Admissions – Virginia,
Maryland, District of Columbia
and Massachusetts
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3. Overview
 Worker Designations
1.
2.
3.
Employee
Independent Contractor
Intern
 Why It Matters
 Risks of Mischaracterization
 Prudent Practices
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4. Worker Designations
Independent Contractors and Employees
are Separate and Distinct animals!
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5. Who is an Employee?
The designation of an employee can be
clearly defined using:
 Court
The “Silk” Factors
 Internal Revenue Service
Benchmarks
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6. Supreme Court on Tax Status
 United States v. Silk
 Opinion issued June 16, 1947
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7. The Silk Factors






Degree of Control
Profit or Loss Opportunities
Investment
Degree of Skill
Permanence
Integral Part of Business
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8. IRS Benchmarks







Degree of professional control
Staffing
Degree of independence
Type of service
Flexibility/control of hours
Right to fire/quit
Financial concerns
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9. Professional Control:
 An employee is told what to do, when to do it and
generally uses company tools and resources to
perform the job.
 An independent contractor is charged with
completing a task and is responsible for results.
He/she provides his/her own tools, equipment
and facilities. How the task is completed is a
determination of the independent contractor.
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10. Staffing:
 Employees are assisted by other company
employees at the express or implicit direction
of the business owner.
 Contractors provide their own assistants
(often sub-contractors) at their own cost.
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11. Independence:
 An employee works solely for his or her employer.
 Independent contractors make their services
available to the general public. They can and do
accept multiple tasks from multiple businesses.
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12. Services Performed:
 In the employer-employee relationship,
the worker provides personal
service to the company.
 An independent contractor may hire, supervise and
pay his/her own staff or assistants in order to
accomplish the work of which the
contractor has been tasked.
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13. Hours:
 An employee often has work hours established by the
employer and may be required to work or be
available on a full-time basis.
 An independent contractor generally works when
he/she wishes, provided the project is properly
completed.
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14. Right to Fire / Right to Quit:
 An employee may quit at any time without incurring
liability and an employer may fire an employee.
 An independent contractor must complete the
contract satisfactorily or may be liable for breach of
that contract. Likewise, he/she cannot be fired as
long as he/she produces the required results.
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15. Financial Concerns:
 An employee is generally paid at regular intervals,
such as by the hour, week, or month. An employee
gets a W-2 statement reflecting payments received in
a calendar year.
 An independent contractor can make a profit or suffer
a loss, based upon his/her own business decisions.
Contractors are issued 1099 Forms and file business
tax returns.
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16. Special Case: The Intern
The U.S. Department of Labor (DOL) has
a six-factor test to determine if the intern
should be treated and classified as an
employee, who must be paid.
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17. Factor # 1
 The internship, even though it includes
actual operation at the facilities of the
employer, is similar to training which
would be given in an
educational environment.
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18. Factor # 2
 The internship experience is for the
benefit of the intern.
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19. Factor # 3
 The intern does not displace regular
employees, but works under close
supervision of existing staff.
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20. Factor # 4
 The employer that provides the training
derives no immediate advantage from
the activities of the intern and, on
occasion, its operations may actually be
impeded.
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21. Factor # 5
 The intern is not necessarily entitled to
a job at the conclusion of the internship.
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22. Factor # 6
 The employer and the intern
understand that the intern is not entitled
to wages for the time spent in the
internship.
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23. Household Employee
 Control over work product
 Hours according to your schedule
 Payment for services determined by
you
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24. Examples of Household Workers
include:
Babysitters
Caretakers
Maids
Drivers
Health Aides
Nannies
Private Nurses
Housekeepers
Gardeners
House cleaning workers
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25. When Household Employees are
NOT Your Employee
 The work is not done in your home
 The worker was hired through an
agency
 You do not provide any tools for the
work to be performed
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26. Why It Matters
The IRS has recently made the mischaracterization of
employment status a focus of attention. President
Obama’s 2011 fiscal budget allocated significant
resources to joint IRS – Department of Labor efforts to
investigate and penalize employer
mischaracterization.
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27. Who Cares?
The IRS cares because, in cases of
mischaracterization, they lose payroll
taxes and related revenue.
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28. What’s the Risk?
To the Employer – the risk is
ENORMOUS!
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29. Possible Damages:
 Unpaid wages plus damages.
 Attorneys’ Fees.
 Penalties imposed by the IRS and State taxing
authorities.
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30. Prudent Practices:
 Memorialize working relationship in an
appropriate contract.
 Maintain appropriate professional distinction
among personnel.
 Don’t offer benefits, company credit cards or
the use of company computers to contractors.
 Don’t ask contractors to sign non-competition
agreements.
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31. continued….
 Don’t allow contractors to hold themselves
out to the public as employees (such as
through the use of business cards).
 Maintain clear business records which
include copies of the independent
contractor’s contract, IRS Form W-9 (request
for taxpayer ID number) and copies of
professional license(s).
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32. Summary
 Understand the needs of your business.
 Hire employees, people you will control
to do the work you need.
 Determine when/if you have a need for
an independent contractor and be sure
to let him/her be free to complete the
task for which you contracted.
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33. Bean, Kinney & Korman, P.C.

Founded in 1959 in Arlington, Virginia

One of Northern Virginia’s largest and most trusted law firms

More than 37 lawyers; comprehensive array of practice areas

Nine LEED Accredited Professionals

Serve clients throughout Virginia, Maryland and D.C.

Regularly appear in all Federal and State Courts in the D.C. metro area
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34. James V. Irving, Esquire
Bean, Kinney & Korman, P.C.
2300 Wilson Boulevard, 7th Floor
Arlington, Va. 22201
703-525-4000, extension 280
jirving@beankinney.com
www.beankinney.com
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