Strategies for employees vs. independent contractors

Recently we broached the subject of classifying your trainees, appraisers, or selves as employees or independent contractors. We heard from several appraisers who are dealing with the issue firsthand.

As we noted, the determination whether someone is an employee or independent contractor is not formulaic, it's made on a case by case basis looking at all the facts of a business relationship. The common law – the English legal tradition largely absorbed in this country – had 20 factors to consider to determine whether someone was an employee or an independent contractor. The IRS has pretty much adopted those "20 questions" and relies on that structure to determine individual cases. Some of the factors most relevant to appraisers include:

	Does the company employ assistants – typists, processors, coordinators – to help the appraiser?
	Are business or traveling expenses reimbursed?
	Does the appraiser work on the company's premises?
	Is payment by the hour, week or month, instead of per job?
	Can the appraiser be fired for reasons other than failure to complete a job?
	Can the appraiser terminate the relationship without incurring damages for work not completed?

A "yes" answer to any of these doesn't necessarily mean the appraiser is an employee instead of an independent contractor, but it will lead the IRS in that direction.

If you're an employer interested in doing everything you can to ensure an appraiser is an independent contractor, there are some strategies you can employ. None are a slam dunk, but following all or most of them will help. (Conversely, if you're an appraiser unsure of your classification, look at whether the company is doing some or all of these things.)

First, have the person sign an agreement acknowledging he or she is an independent contractor. The IRS isn't going to go by what you and the appraiser understand your relationship to be, but this is a big plus. Have the appraiser bill you for services rendered, per job, with separate invoices – that is, instead of a monthly statement listing all the jobs done that month.

Require the appraiser to carry his or her own worker's compensation coverage, if applicable in your state. Give the appraiser flexibility in hours worked, where the work is to be performed, etc. And have the appraiser use his or her own computer, transportation and supplies.

A rundown of the law on the subject – not prepared by us so we can't take credit or blame for it! – can be found on the Web here.