www.chescobar.org Continued from page 8 12. paying worker by the hour, week or month 13. payment of worker’s business and/or traveling expense 14. furnishing worker’s tools and materials 15. significant investment by worker 16. realization of profit or loss by worker 17. working for more than one business at a time 18. availability of worker’s services to the general public 19. firms’ right to discharge worker 20. worker’s right to terminate relationship
The IRS notes that the above factors describe three broad categories; (1) behavioral control, (2) financial control, and (3) the relationship of the parties. Each category contains types of information (facts) that illustrate the right to direct and control, or its absence. There’s no magic number of relevant evidentiary facts that’s dispositive. Instead, all the facts must be weighed in evaluating the extent of the right to direct and control. The IRS tends to pick and choose to its own benefit. The Tax Courts view the degree of control exercised by the person for whom the work is performed over the individual who renders the services as the fundamental factor in these determinations. This means the “right to control” how the work is performed, whether or not any control actually is exercised. So, the courts must examine the degree to which the principal “may intervene to impose control.” Remember the IRS has a myriad of reasons for attempting to treat everyone as someone’s employer! With regard to employee-type benefits, the Tax Court has found that taxpayer’s receipt of employee benefits (participation in deferred compensation plans) was another factor indicating that a worker is an employee, not an independent contractor, and that the non-receipt of these benefits was a factor indicating independent contractor status. And the IRS has stated that the fact that a worker is excluded from a benefits plan because the worker isn’t considered an employee by the employer is a relevant factor, although not conclusive, in determining the status of a worker as an employee or independent contractor. Access to employee benefits is, as such, an important factor in determining whether an employer-employee relationship exists;
AttornEy DiSCiplinAry AnD EthiCS mAttErS StAtEWiDE pEnnSylVAniA mAttErS no ChArGE For initiAl ConSUltAtion
Representation, consultation and expert testimony in disciplinary matters and matters involving ethical issues, bar admissions and the Rules of Professional Conduct
James C. Schwartzman, Esq.
• Member of the Supreme Court of Pennsylvania Judicial Conduct Board • Former Chairman, Disciplinary Board of the Supreme Court of PA • Former Chairman, Continuing Legal Education Board of the Supreme Court of PA • Former Chairman, Supreme Court of PA Interest on Lawyers Trust Account Board • Former Federal Prosecutor • Selected by his peers as one of the top 100 Super Lawyers in PA and the top 100 Super Lawyers in Philadelphia • Named by his peers as Best Lawyers in America 2015 Philadelphia Ethics and Professional Responsibility Law “Lawyer of the Year,” and in Plaintiffs and Defendants Legal Malpractice Law 1818 Market Street, 29th Floor • Philadelphia, PA 19103 (215) 751-2863
and it’s the availability of employee benefits, not the receipt, that’s determinative. In a case that strikes close to home, a law firm’s office manager and secretary were improperly classified as independent contractors instead of common law employees. The court found that the law firm (1) exercised complete control over the details of the work performed by these individuals; (2) provided these individuals with office space, a desk from which to work; (3) compensated them in a way that precluded them from realizing a profit or loss from their work; (4) had a continuous and uninterrupted relationship with these individuals; (5) reserved the right to discharge these individuals at will; (6) considered their services an essential part of its business; and (7) provided them with certain employee benefits, such as vacation pay, sick pay, health insurance, holiday bonuses, and payment of employment taxes. This is serious business and characterization of workers also impacts your clients’ workers’ compensation. The penalties involved in mischaracterizing an employee as an independent contractor are severe. Know the rules and make sure your clients know them as well.