Yes, I know, you and your virtual assistant (V.A.) have a contract stating that they are an independent contractor.
They gave you an EIN number.
They have a website and a business card.
They even showed you a document saying that they have a d/b/a (“doing business as”) registration.
Sorry, dude, but that V.A. could *still* be your employee.
Because under the law of the United States, what it says in that contract may be pretty much irrelevant.
Why does it matter if your Virtual Assistant is actually your employee?
Because if they are an employee, you could be liable for:
- Payroll withholding, FICA (social security & medicare), and federal unemployment tax
- Minimum wage, overtime, and record keeping requirements of FLSA (Fair Labor Standards Act)
- OSHA and other health and safety regulations
- ERISA (retirement benefits)
- Federal Medical Leave Act, worker’s compensation, unemployment insurance liability
- Employee benefit requirements of your jurisdiction (such as medical insurance coverage)
- Contract and tort liability for your employee’s actions with third parties
- Other rules, taxes, and regulations of your local government and/or state
The wild thing is that for some of those, you are *personally* liable – even if you are incorporated.
Oh my. I wish I could tell you “here are three easy steps to make sure your V.A. is an independent contractor” but the law in this area is squishy. No simple bright-line rules. Sigh.
But before I explain those rules and what you can do about it, let me take a step back to explain why your contract isn’t enough.
Think back to the 1920s and 1930s. Back then, employers would require people to work in factories for 60 or 80 hours a week, pay them almost nothing, employ young children, bar the doors during work hours (no fire escapes!), and allow horribly unsafe conditions.
People still took those jobs.
Because they were desperate for the money. Because they didn’t have the power to do anything about their situation. So starting during the Great Depression, laws were passed to require minimum pay, overtime pay, safer working conditions, payroll tax withholding, unemployment insurance, and eventually, non-discriminatory practices and benefit rules.
These are paternalistic laws.
This is not about people having the freedom to work as they choose. This is about the public interest purpose of protecting workers and encouraging the employment of more people. That’s why you cannot contract around these rules–it would defeat this public interest purpose. If a simple contract would allow any full-time worker to be an independent contractor instead of an employee (and thereby not subject the employer to these laws), every employer would do that for all of their workers. Alas, so you’re having to deal with the mess of these rules because of the employers who have treated people like crap.
So what is the rule? How do you know if your V.A. is an independent contractor or an employee?
That’s the hard part. There isn’t one statute, or one court case, that specifies one set of rules. The IRS has a standard, the U.S. Department of Labor has a standard, the EEOC has a standard, various court cases have cited standards, your state has a standard – and the state where your VA is located may have even another standard (different examples: California, New York, and Minnesota). And in some places, like California, there is a presumption that the worker is an employee–so it is up to you to prove that they are actually a contractor. The rules themselves are vague, multi-part tests. It’s about the “economic reality” of your situation–in other words, it’s a case by case basis of the daily reality of how you work with this person, not about a contract or what you say you are going to do. Yep. It’s a bit of a mess.
Here are the most important factors of whether someone is an independent contractor or employee:
Contractor or Employee: Do you have the “right to control” the worker?
Here I’m not just talking about whether you have the right to control the output, or the results. Because usually you will have some kind of standard of results for any employee or contractor. This is about whether you have the right to control *how* the work is done. Are you setting the hours, giving steps or methods, providing a checklist or script or process for how you want the work done? Do you provide required equipment or software? Do you give them projects, or daily tasks? Is the assistant allowed to hire others (subcontract) to do the work? Do you dictate or even provide which supplies or resources they use? The more control you have over *how* the work is done, the more likely this person is your employee.
Contractor or Employee: Is the worker in business for themselves?
Do they have a website, business cards, incorporation, a DBA? Have they invested in their marketing, administration, training? Are they holding themselves out to do work for the public? Do they have other clients? Watch out for if you are your V.A.’s only client and/or if they are working for you for a majority of their time.
Contractor or Employee: Is this a project-based relationship, or is it permanent and ongoing?
Many V.A.’s work for you indefinitely, even for years. The longer and more open-ended the relationship, the more likely they are an employee.
Contractor or Employee: Is this at-will or is there a penalty for letting the worker go?
Most employment relationships are at-will (you can fire an employee at any time), but for an independent contractor, per the contract, you still have to pay a deposit, the full fee, or a penalty, if you terminate it early. In some jurisdictions like Minnesota, this penalty is very important evidence of a contractor relationship.
Contractor or Employee: Are you supervising the worker? Are they working on-site or remotely?
The more supervision (which really is a part of control), the more likely someone is an employee.
Contractor or Employee: Is this person an integral part of your operation?
This goes to whether this person is replacing what would normally be the role of an employee. Here, many virtual assistants are doing just that–replacing what would normally be the job of an employee receptionist or secretary, providing day-to-day assistance. That’s the whole point of a V.A., and makes it more likely they are an employee.
Contractor or Employee: Do you train them how to do the job?
Watch out if you’re training your V.A. how to do their job, as opposed to them providing their own training or coming in with already-acquired expertise.
Contractor or Employee: Does the worker have an opportunity to either make a profit or a loss on this job, depending upon their business management skill?
For example, I bill my clients an flat-fee annual retainer. For some clients, I will make a profit because I can get all the work done efficiently. However, for other clients, I may end up losing money, because the work takes me too long or I have to hire it out at high rates. For that and many other reasons, it’s pretty clear that I’m an independent contractor for my legal clients. If you’re paying someone by the hour, there is less opportunity for profit/loss (and it’s more likely they are an employee), versus someone who charges by the project or via a monthly retainer.
Contractor or Employee? Bottom line:
Be very careful in how you design your relationship with your virtual assistant, to try to make it as hands-off as possible and yet still meet your goals, if you want it to be characterized as an independent contractor relationship.
In your contract, include specifics of how the relationship will work (using the guidelines of the laws that apply to you), and also *abide* by what you are say you are going to do, in how you two work together. There are no guarantees here, especially considering that the law is evolving and your relationships with your V.A. will likely evolve also.
And, of course, the best bet is to have the contract and the relationship reviewed by an attorney.
But you knew I was going to say that. 😉
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