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Stepping Outside the Corporation

In a previous article we discussed that just because you engage with a corporation to have work done does not automatically protect your company from worker misclassification risks. In our role as independent contractor compliance and engagement specialists, we are often asked by enterprise clients to help them manage the risks surrounding professional services vendors who perform work on a SOW basis for the benefit of the client company.

In today’s article we’ll examine a common phenomenon in enterprise programs: the individual worker who “steps outside” their own corporation (or the one he/she works for) and instead performs work as a common law employee for another company.

How does this work? Let’s take a look…

You need to look at it like a government auditor would. Start by reviewing all the common law factors to see the total picture of the working relationship between the worker and company. One helpful frame of reference is to ask yourself, “Did we engage an independent business (corporation), or did we hire an individual to perform the work?

Best Practice

It is important that you contract for the corporation to perform the work, not for an individual who happens to have a corporation or work for one.

This is a very important distinction.

If you are employing a corporation to do the work, you are contracting for certain specifications, deliverables, or outcomes, to be completed within a specified timeframe and for an agreed upon price. You look to the corporation to perform, not an individual who is being paid through the corporation. Therefore, it should not matter:

  • Who actually performs the work
  • What hours the work is performed
  • How many hours it takes to complete the project
  • If the corporation is also providing similar services for your competitors at the same time

In contrast, when you engage an individual you may expect them to:

  • Personally perform the work
  • Not employ a subordinate
  • Be paid for the time worked as opposed for a completed job
  • Reimburse them for expenses
  • Follow your daily schedule for hours
  • Change activities to meet daily needs
  • Not work for your competitors

As you can see independent contractor compliance becomes more complex when you’re evaluating a business vendor situation. It pays to have an expert on your side!

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