- Independent contractor or employee? Which are the people working for you? Hey, listen to this episode and find out. Hey, it's Alan Berg. Welcome back to another episode of the "Wedding Business Solutions" podcast. I am so happy to have back on Nequosha Anderson to talk about another legal issue. Nequosha, welcome back.
- I am so excited to be back. Thank you for having me. I think you like me.
- I do like you. Your energy is so good, I love you. And before we did the last episode, which was on intellectual property, before I had turned on the recording, I had mentioned that I had recently posted something. It was a podcast about independent contractor versus employee. And this is something that you as an attorney, you also run in today. And this is something that's really, really critical for the people that are listening, because many people here use independent contractors. And there's nothing wrong with using an independent contractor if they're truly an independent contractor. And the government is cracking down, and a lot of people have been kind of playing in a gray area. And I want to talk about what that gray area is. So give us first, what... An independent contractor, what is the definition or from a legal standpoint, what would you say an independent contractor is?
- So this is just me paraphrasing. It's not the true definition because I-
- And this is not legal advice. This is just us talking over here. If you want legal device, you can contact Nequosha or your preferred attorney directly.
- Come on, thank you. Yes, that disclaimer there. The IRS has a definition, it is very long, and then your state may have a definition, and then the other branches of the Federal Government may have a definition. So this is just me paraphrasing them all together. Ultimately, an independent contractor is someone who is working independently. Meaning they provide their own equipment, they dictate when and where they work and how they work within the parameters that you give them. So that means this is the good to flip on the inverse. With an employee, you provide the educational training, you provide the equipment, you provide the hours in which they work, you are required to pay payroll taxes, and in other designated state taxes, depending on where you're located, for them to provide their work or labor for the furtherance of your business. Now, where the lines get murky, especially in the wedding world, and event planning world is oftentimes we all will hire independent contractors for events. We won't hire employees, but we'll dictate to them, you need to come dress like this, you need to come dress like that and provide this and this and that. But this is where the lines get murky, because you're dictating the freelancer's ability to work. They should be providing the uniform, not you. They should be providing the education and training to do the services that you advertised for them that you need help with, not you. So it definitely gets murky because if I have an employee, then I'm responsible for the upkeep of their education in the industry, I'm responsible for their uniform, I'm responsible for their equipment. I may be responsible depending on how many of them I have for insurance, health insurance, workers comp, the list goes on and on. So I see why there's a line, because it's expensive, it is expensive to take these people on.
- Right, so let's give us an example. Let's say this photographer and they're themselves are the business and they bring in contractors or they bring in other photographers... Not going to call 'em contractors. They bring in another photographer to help them on a weddings. So obviously they have to dictate when and where they need to be, 'cause they're hiring them for that specific wedding. So I'd say I'm doing the wedding of Chris and Chris and you need to help me with that. That photographer brings their own cameras, that photographer brings their own lenses-
- Yes.
- Their own flashes.
- Yes.
- I can give them a memory card though, because those are my pictures. So I can give 'em a memory card to use. Where does that line... Because obviously I am telling them where to be and when to do it. So where do I get into that gray area? 'Cause that was kind of black and white, that's kind of black.
- That is very black and white.
- Where does it go gray?
- It goes gray when you hire that extra photographer and you just say, I want you to come on board to help me with jobs, and there is no clear definition of when the relationship begins and when the relationship ends. So for instance, if I got hired for Chris' wedding, then I know that I'm getting hired for Chris' wedding and it's going to end at this day and this time, boom, our agreement is over. If you want to hire me again for Rebecca's wedding, then it needs to be this day and this time. But it's not an open range relationship where I can just call you up at any time and say, "Hey, I need you to go to Rebecca's wedding "on October 22nd," and it's June. Unless we have some written agreement. And that's another thing that really irks me is people say, "Oh, it's just a $500 job, "it's just a $300 job, I don't need a written agreement." Yes you do. Because if the IRS or somebody come audit you... And there's nothing wrong with getting audited, as long as you have the paper trail, you're fine. There's nothing wrong with getting audited. Don't let that scare you. As long as you have the proper documentation, that's when you should get nervous when you don't. But nonetheless, have something in writing that just simply says, on this day and that time, Christopher's Photography or whatever the name of their company or their individual capacity, is going to provide the following photography services at this venue on this day and this is the rate, and that's the end of it.
- All right, but, not but, I shouldn't say but. What if I have one of those pieces of paper and I hire the same photographer 20 times this year.
- Then I would love to see a document trail to show that. And it won't take you long if you just have a written template and just fill it in and have him sign it. Because that actually it's for your benefit. What if Chris Photography comes back and say, "You ain't pay me," or "I work extra," or "I provided X, Y and Z?" If you have it in writing, there is no room for ambiguity.
- So it doesn't matter how many times I hire the same independent contractor, as long as those same things. Now if I pay for training for them or if I have them using my cameras.
- You're getting murky?
- But, let's talk about the cameras for a second. So, if I had a machine shop and I needed somebody to help in the machine shop that day 'cause somebody was out sick, and I call somebody up and I say, "Hey, I need you to come in this day," and I do an agreement, "you're going to come in "and you're going to work on my lathe for the day.
- Okay, it's very similar to the photography. A beginning and an end to the labor. There's a beginning and the end of the labor and then your particular industry and IRS wrote it in a way that it's not so black and white, the definition. It's gray because every industry is just a little different. And then the example you just gave with the machinery, that's different. It's not very rare you see a person walking down the street with a 3000 pound machinery and just say, "I see I'm coming to work today." No, that's different. But there is a beginning, there's a definite beginning and ending to that particular relationship. You know, that Billy Bob is going to come in... Shout out to the Billy Bobs. That is going to come in and work on your machinery that day for that particular. Sort of like when you got a substitute. The substitute came in for four hours or eight hours to watch the kids, that substitute knew the beginning and end and they would be a proper 1099 for the organization that brought them in that day.
- And it can be more than one day though?
- It can be more than one day. It's not limited one day. You just need a proper beginning and end and a clear definition of where the relationship will begin and end. But understand that if you are a service provider and you say, I have a freelancer and I have this project, you can't necessarily say to the person, "Oh, I want this project it's just ongoing." You need to have a clear definition of when the project should begin and when you want the deliverables by, in order.... 'Cause oftentimes this is where it gets murky, because they're like, "Well I need to dictate how many hours they work, "and I need..." Well no, you're paying them at an X amount of rate, you give them this project is allocated for 20 hours. How you work those 20 hours is up to you. We can have, the way you can get around this, here's a little cheat sheet. You can have little check-in a part of the project, to where if they have 20 hours, by the time we get to the 10th hour, we're going to have a 10.... When you submit a 10 hours of work, we're going to have a check-in to make sure that we're on track. When you submit 15 hours of work, we're going to have a check-in period to make sure we're on track. And if any modifications need to happen, then they can happen. So those are variables that you can put in place that are not necessarily dictating when the freelancer or the independent contractor is working, but just making sure they're meeting the scope of the deliverables that you want.
- So getting into the scope. So if I hire somebody to do a website, I'm not telling them how to do it or whatever, but I need it by a certain date is okay? Because that's still part of the parameter that I'm hiring them for is to do that?
- Correct.
- So again, going back to the photographer, I can give them my cameras to use 'cause I need specific cameras used for this, I need specific lenses used for this and if they don't have it, I'm hiring them as a technician to use it, I can still have them use my equipment?
- Of course, it's not that hard. It's not that hard to understand. It's one of those things where if you need it... If the client hired you for a certain type of sunset shot and you know that your lens is the only lens that can capture it in the way that the client designated, then of course then you need to give them access to that particular lens so they can meet the deliverables of being your number two in this particular project. But that didn't mean that they... It has a clear beginning and end to when they are working with you, is what I'm trying.
- Right, so there's a lot of people out there using independent contractors that some people are feeling pretty good now and some people are a little bit confused right now, and some people may be getting a little bit worried. So I know a lot of disc jockeys that we would call 'em multi ops, where they have more than one disc jockey that's working for them. A lot of them like to use the contractors. So to stay on the black and white side instead of the gray side there, and there are advantages of them being employee. Actually let's talk about that before we get into the other part. The advantages of them being an employee instead of being an independent contractor are?
- Advantages include dictating schedules. Advantages include making sure they're properly trained in the areas that you want them to be. Advantages include tax breaks, dependent on the state and jurisdiction that you are in. Additional benefits is you get a little bit more of control. Let's say that freelancer is not a designated 20 hours, but you wanted the project done in three days. Unless they say that they'll do it in three days, you got to wait until that 36 hour mark. But if you had an employee you could say, "Hey, I need this done by the end of the shift."
- So, again, it's the control over there, but it's also you get to dictate change to schedule otherwise you'd have to redo your agreement with that independent contractor to say, I need this done by a certain time.
- Correct, that control people think, "Oh well freelancer..." I want you to look at your bottom line. At the end of the day you have to do what's fiscally in your best interest for your business. You have to do what's in the best interest for your business, that rhymes. And so oftentimes people are like, "Well I can't really afford an employee." Let's sit down and do the math, 'cause sometimes paying so many freelancers, you can get more work out of people, if they knew that they had secure and regular income. They will work drastically different for you if you can guarantee them that every two weeks or every week or every month or however you set up your payroll, they will get an income. The work product will drastically change. And so there's another advantage of having an employee.
- I guess that brings up something where if I have somebody as an employee, but the work schedule isn't a regular schedule, can I still pay them for the the work that they do? I guess that would be like an hourly, I consider them an hourly.
- Yes, it's an hourly. There's different hourly of course there's salaries. It just kind of depends. Like, let's say you want to hire a disc jockey and they know they're hourly and they going to work what, five, seven hours for the event or whatever. And they know that they'll get an assignment on another day, but they're actually getting a W2 instead of a 1099. They're getting access to healthcare, they're getting access to different things that they wouldn't necessarily be eligible for as an independent contractor and they will be more likely to work exclusively for you. That's the other advantage of having an employee, they working exclusively for you in the hours that you designate. When you have a freelancer, they literally can be freelancing for five to six other people at the same time that they're working for you, so the quality of work will be drastically different. These are all things that you need to factor in because let's say you are a florist and there's a major convention coming, and the convention center says, "Hey, we want to have floral "on three levels of our convention center. "Can you do it?" And you're like, "Yeah, I can do it." And then you go call your freelancers and they're like, "Oh no, I'm working for the other florist who got the other five floors. What you going to do?
- So when you have a freelancer, you can't say, "If you're working for me, "you can't work for somebody else?"
- That is correct, you cannot, You cannot put boundaries around who they work for. So that means they could literally be working for your competitor. So this is another reason why you need to have a written agreement to make sure there's confidentiality in the things that you share with them. And to be honest... This is just a personal tip. I wouldn't share that much information with my freelancers because I don't know what's going on on their machines. We live in a data age, you don't know if they have security breaches. If it's my equipment, I can put data monitoring software on there. I can see what is getting done when it's getting done, if it's my equipment. But if it's their equipment, I don't have that luxury. Can I ask them to do it? Yes. But do they have to do it? No.
- No. So again, I'm just thinking about all the different people in our industry. So if you have a caterer, caterer has servers, that need servers to come in. Again, if they have an agreement with that server, I need you to be a waiter, a bus person, a kitchen staff or whatever for this day come in, again, defined beginning and end, can an agreement like that cover different independent days? So I have four weddings coming up and I need you on those four weddings.
- As long as you can say clearly. I would say for me, I got a wedding on May 1st, I have a wedding on May 17th, June 1st and June 18th, are you in? Yes, I'm dedicating that I will be available for X amount of days on this time at this rate, I am certifying that I'm ServSafe and I'll be able to demonstrate that I'm ServSafe certified and all these other things. Because you want to make sure the people have the proper training, because remember it is not your job to train them as a freelancer, they are certifying or telling you that they have the proper skillset to produce the labor that you need. So that's important too.
- So I can give them certain types of training 'cause I need 'em to do certain things but I can't give them ServSafe or-
- I mean you can if you want to, but that's literally you just paying for a freelancer to be certified, and if you want to do it, you can, but that doesn't make them your employee, and that doesn't mean you can dictate how they use their certification. They literally can go to your competition and say, "Hey I'm food safe certified now, "I can work for you."
- But if I'm okay with that.
- Exactly.
- Because if I'm okay with that and I think this person's going to work for me and I'm investing in that training, I can still consider them a contractor under the right circumstances there. Then again, it gets back into talking to your attorney, talking to your accountant, which is actually better for you and for your business. Again, for them, if they're an independent contractor, they're paying all of their payroll taxes themselves, whereas if they're an employee, you're paying part of their payroll taxes, so it's actually an advantage to them as well and protections for them as well. But I think the big one that we don't want to skip over, 'cause we both said it over here already, if they're an employee, they're not working for your competitors, if they're a contractor and you tell them you can't work for my competitors, they're not a contractor anymore.
- They're not a contractor anymore, my friend, and you are limiting their work availability, their access and that comes with you making them a W2 employee.
- So this has come up a lot lately. There have been people in our industry that have gotten a bad wake up call when they do get audited about this. And now it's all these back taxes and all these legal fees and all these things over there. So again, you want to play in the gray area, you got to be prepared that you might be falling on the wrong side of that. And for everybody who says, "Well I'm not going to get audited," there's somebody out there with a horror story. If you want to hear them, Nequosha can tell you all the horror stories that she's had to deal with.
- Yes, my mom's accountant, she's been an accountant for 35 plus years. So I get to hear some table talk about some of the things that you all don't do. Number one, always be nice to your accountant and don't give them receipts in a shoebox. There you go. I am the son of a retired CPA so I get that. My accountant got all my QuickBooks files already for my taxes and see and stuff-
- We like you.
- Yes, and my account's balance and all that, that's my left brain kicking in, 'cause my degree is actually in marketing and accounting.
- Oh, okay.
- Well I started out to be an accountant like my dad and after two years I'm like, "Eh, just not feeling it." So I didn't want to lose all the credits, so I switched to advertising and was able to double major so I didn't have to state longer.
- Great.
- Yes. I think that's why we told our sons that we pay for four years. You can take as long as you want, but we we're paying for four, that's it.
- I like those odds there. My parents enjoyed me, I did it in... Well technically I did it in three because I was fortunate to start college in high school. So the state paid for the first two, so they only had to pay for the latter-
- To pay for the rest of them there. And my last college tip here, as I told one of my sons when he was having his freewheeling first semester, I said, "We're on the nautical plan when it comes to college." And he said, "What does that mean?" I said, "All your grades will be above C level."
- That is cute. I'm about to use that with my 10 year old. She's not there yet, but I'm definitely going to write that one down. We need nauticals around here.
- Yeah, I said above C level, because I told him if you like the letter C... We were live in an Orange County New York, we have Orange County Community College, that there's a lot of Cs right there.
- There you go.
- So if you like the letter C we're going to do that for like $4,000 a year, not 34 or whatever the number is, when your 10 year old goes, who knows?
- Oh, I don't even know. College is annoying. But I live in Orange County, Florida.
- There you go.
- There you go.
- There're the other ones. So, again, this is a really important topic. It's something that you do need to get your head out of the sand and not say it's not going to happen to me. If it ends up costing you more payroll taxes and things like that, you need to figure that into the rate that you're charging people to do it the right way. Just like you did with insurance, please have liability insurance and the other insurances you need. I remember a friend of mine who had started deejaying when my older son was in college, his fraternity was going to have a formal event and I said, "Hey, Steve has started deejaying," and they went to hired him 'cause he was cheap 'cause he had just started, and the hotel asked for his insurance certificate and he didn't have one. Oh geez. And I said, "Well why don't you join "the American Disc Jockey Association, "get your insurance through them. I said, "It's probably going to cost you "the 300 that you're going to get paid." This is years ago. And he said no, he didn't want to do it. So he didn't, he didn't get the gig 'cause he couldn't do the gig at the hotel. I said, "Well you have a year's worth of insurance "and now you could do every gig," and didn't want to do it.
- So again.
- Mindset is everything, and it will make or break your business. You have to think long terms and you have to think back to why you started. If it's simply to make money, runaway now.
- Yeah, and again, it's a business. The business part of it is different than the craft part of it, which I speak about all the time. I wouldn't have a business if people got into this with business experience, but they get into the industry without that, so-
- I too wouldn't have a business if people got into it with business and legal acumen, because oftentimes they are very crafty and amazing technicians, but poor, poor business people.
- Well, it's not a skill that they've ever studied.
- And you and you shouldn't feel bad because you don't know what you don't know. You hire experts to level you up. And then be cognitive of the experts that you are hiring. Everything that glitters is not gold, and just because they have great photography and marketing does not make them a true expert.
- That's right. They got to look into the back end of that. So we're going to put it into the show notes again, but if somebody wanted to get ahold of you, it's nequosha.com.
- It's nequosha.com, or you can visit me at my firm website, which is andersonlawfl for florida.com. Anderson Law Firm PLLC, that's me. You could just Google my first name, I'm the only thing that will pop up, I promise.
- It's going to be in the show notes, so you just have to click on the link there. So Nequosha, thank you for joining me, again for another important topic. I love speaking with you, I love your energy and if anybody needs legal advice, official legal advice, reach out to Nequosha.
- Thank you so much for having me.