Q: With all the recent articles about the great efforts by ASTA, the California Coalition of Travel Organizations and individual agencies to try to maintain independent contractor (IC) status for travel advisors, I have been thinking about the status of my own ICs. Aren't they automatically ICs if I provide them with a 1099 each year? What if I pay them on commission only? What if they never come to the office? What if they sign "independent contractor agreements" with my agency? What if they have their own clientele that they developed independently? Can I bring on a new person as an IC on a probationary period and then convert him or her to an employee if they pass probation?
A: One of the most common myths in the industry is this: If you split commissions with a home-based person who has his or her own clientele and you provide a 1099, then it follows that this person is automatically your IC. That is simply not true, and it has never been true.
If you do not withhold taxes from compensation, you would typically provide him or her with a 1099 (as opposed to a W-2) form at the end of the year. However, paying in gross does not make the person your IC; you may simply be violating the withholding-tax obligations of employers.
The method of compensation, such as a commission, fixed amount per pay period or a per hour amount, has no bearing on IC status. Employees can be paid on all those bases and so can ICs.
The location at which the person works has some bearing on IC status, but it is never enough by itself to prove that a person is an IC. For example, under the rules of many states, a valid IC must work away from the premises of the company, but that is just one factor in determining the person's status.
Finally, the fact that the person has his or her own clientele also has some bearing on IC status, as it shows that the worker has an independently established business. However, if you control what and how the advisor sells to his or her own clients, that person will be deemed your employee.
Taking your next question, if the worker signs an IC agreement, it does not necessarily mean that he or she qualifies as an IC. Under most states' rules, you need such an agreement as a minimum, but if you still tell the person when, how and where to work, he or she is your employee under the law.
Another myth is that you can hire a worker on a trial or probationary basis and put him or her on the payroll as an employee only after you decide that you want to keep the person permanently. Actually, there is no such thing as a trial IC; if you decide when, how and where the person must work, he or she is your employee from Day One.