Mark Pestronk
Q: In last week's column, you listed a few "do's" and "don'ts" about controls that our agency can have in our independent contractor (IC) relationships. Your basic guideline was that the work relationship between the IC and clients cannot be the subject of controls about how, what and where to sell travel, but the work relationship between the host and the IC can be controlled to prevent fraud, embezzlement and the like. You stated, "You cannot require sales of preferred suppliers' products ... you cannot assign a work schedule, and you cannot assign a production quota or the like. On the other hand, you probably can have rules that ... require compliance with invoicing procedures to ensure accurate and timely commission splitting, prohibit poaching your clients and employees, prohibit transfer of pending bookings to another host and control use of your trademark." Can you give some more examples of do's and don'ts?
A: Here is a good list of "don'ts" based on the IRS' current test, which lists factors that tend to make a relationship more as one of employment. Although the IRS has not been very actively enforcing its rule, and although the state tests tend to be different, the IRS rule makes a useful list of rules and policies to avoid:
- When and where to work.
- What equipment to use.
- What assistants to hire.
- Where to purchase supplies and services.
- What work must be performed by a specified individual.
- What order or sequence to follow.
- Mandatory training on how to perform services.
- Reimbursement of all business expenses.
- Ensuring that the worker cannot suffer a financial loss.
- Limits on the worker's ability to sell to customers.
- Providing benefits like insurance, a pension plan, vacation pay or sick pay.
- Contracting for an unlimited term rather than a fixed term.
The IRS emphasizes that no single factor will be decisive, so there could be a small number of exceptions at a host agency.
Another good list of "don'ts" is published by the New York State Labor Department, which says that companies cannot:
- Dictate when, where and how they perform services.
- Provide facilities, equipment, tools and supplies.
- Directly supervise the services.
- Set the hours of work.
- Require exclusive services.
- Set the rate of pay of assistants.
- Require attendance at meetings and/or training sessions.
- Ask for oral or written reports.
- Reserve the right to review and approve the work product.
- Evaluate job performance.
- Require prior permission for absences.
- Have the right to hire and fire assistants.
Unlike the IRS, New York's policy is that a legal IC relationship cannot have any of these rules or policies.