In a companion blog piece also published today, I wrote about the difficulty business owners have in understanding what is prohibited direction/control over independent contractors, and what isn’t. To show that this issue isn’t a merely an academic concern, I’ve compiled below a sampling of actual findings made by agencies where they concluded that an independent contractor was being directed and controlled. Note the types of activity that the agencies are telling taxpayers amount to direction/control, and the consequences to business owners as a result.
- Direction/control findings by an auditor, resulting in a $20,000 assessment. The auditor wrote: “The subcontractors are not free from direction and control based on the following:
- The subcontractors worked side-by-side with you and other subcontractor
- The subcontractors were paid your hourly base rate of _______
- The subcontractors were required to attend safety meeting at the beginning of every job
- Your firm does the hiring and firing.”
- Direction-Control finding by an auditor, resulting in $400,000 plus in assessments. The auditor wrote: “All independent contractors failed test 1 because they were all under the firm’s direction and control.
- They handed out the [Business Owner]’s business cards when performing the services.
- [Business Owner] schedules the work based on their availabilities.
- The ICs were working side by side with each other.”
- Direction/control findings, resulting in a $90,000-plus assessment. The auditor wrote: “The contract has so much control and is very much [Business Owner] sided.
- Example on the initial paragraph of the agreement: This Contractor Agreement is effective as of the date of acceptance by [Business Owner]. There is no meeting of the minds required but upon acceptance by [Business Owner] alone – it will be in effect….
- The [Contractors] are there to do the business of [Business Owner] and not each individual business…
- [The IC agreement] appears to be employment requirements:
- No convictions
- Employment eligibility – contractors having INS Form I-9
- Complaints are addressed to [Business Owner].”
- Direction/control findings, resulting in $200,000-plus assessment. The auditor wrote: “They were all subject to the direction and control of the Firm, such as:
- The _____________ routes were determined and assigned by the Firm
- A designated route must be completed before pay is received; and
- Financial considerations for the services (i.e. corresponding rate for each route…were controlled by the firm)”
- Determination of financial control, resulting in a finding that contractors fail the IC test. This was a determination by an agency IC expert: “The elements of control identified: jobs are scheduled, estimated and priced by [Business Owner]; money is collected by, or remitted to [Business Owner]; payment can be made by credit card to [Business Owner] by the customer for services provided; the [independent contractors] are compensated by a percentage of the payment for each job performed; [Company] supplies the [independent contractors] with a yearly statement of earnings on Form 1099; [Company] guarantees all work performed.”
The above is just a very small sampling, from my firm alone, of instances where agencies have found businesses to direct/control independent contractors. The excerpts I can provide can go on for much longer. But from the sampling, I trust you can see the woefully inaccurate and arbitrary and unfortunate bases on which agencies are finding evidence of direction and control…on a much-too-regular basis.
