Mark Pestronk
Q: In "Agencies using independent contractors can avoid labor audits" (Feb. 22), you recommended a couple of steps to help an agency's independent contractor (IC) relationships pass muster with the U.S. Department of Labor. In "These steps may define workers as ICs under federal, state law" (March 7), you recommended seven more such steps. In the months since those columns were published, have you been able to come up with any other steps to help ward off Labor audits and investigations?
A: Here are five more steps that you can take. Two of them were good ideas offered by members of the MAST consortium at a meeting at which I spoke earlier this month.
First, while I previously recommended that you require every IC to set up and do business through a corporation or limited liability company, I now realize that such a step may prevent the IC from being covered under the host's errors-and-omissions policy. Therefore, if such coverage is part of your agency's attraction for ICs, you can simply require that each IC adopt a trade name and obtain an IRS employer ID number, in addition to obtaining a business license (as I previously recommended).
Second, while I previously advised that you should get the IC to pay for each service that you provide, such as GDS access or a telephone with a dedicated number, ICs can also be required to contract directly with third-party providers for business services such as printing companies for business cards. Such an arrangement makes it even more likely that the IC would appear to be in business for himself or herself.
Third, you can set up a separate company to host your ICs and provide business services such as office space and office equipment. Then you can have that company contract with your agency to provide travel fulfillment. With such a structure, the ICs and their host (the business-services company) would not be in the same business, which makes it more likely that the ICs will appear to be in business for themselves.
Fourth, you can provide, in your IC agreement, that the IC is retaining your agency or host company for fulfillment, instead of the traditional, opposite arrangement whereby your agency retains ICs. You can further provide that the entire commission belongs to the IC and that your split is, say, 30%, instead of stating that the IC's split is 70%.
Finally, you can require the IC to invoice your agency or host company for the commissions and fees that you would normally owe the IC. First, you would need to generate a detailed report of what was collected and then, as a second step, the IC would send you an invoice, as in any true B2B relationship.
Sharp readers are undoubtedly thinking that all of these steps are really exalting form over substance, creating a facade that may be the opposite of reality. I tend to agree, but in my experience, structural changes such as these tend to please auditors and investigators and tend to make them desist from probing further.
In other words, changes such as these would be seen as bona fide attempts to show that the IC is truly in business for himself or herself, which is the test articulated by Labor.