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Working With
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• Avoid crushing fines and penalties from the IRS
• Create solid contracts with ICs Stephen Fishman, J.D.
• Comply with state labor and antidiscrimination laws author of Working for Yourself
The go-to guide for hiring ICs, including workers through gig websites
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LOS ANGELES TIMES
10th Edition
Working With
Independent Contractors
Stephen Fishman, J.D.
LAW for ALL
TENTH EDITION JULY 2020
Editor AARON HOTFELDER
Cover Design SUSAN PUTNEY
Production SUSAN PUTNEY
Proofreading ROBERT WELLS
Index THÉRÈSE SHERE
Printing BANG PRINTING
Names: Fishman, Stephen, author.
Title: Working with independent contractors / Stephen Fishman, J.D.
Description: 10th edition. | Berkeley, California : NOLO, 2020. | Includes
index.
Identifiers: LCCN 2020002117 (print) | LCCN 2020002118 (ebook) | ISBN
9781413327489 (paperback) | ISBN 9781413327496 (ebook)
Subjects: LCSH: Independent contractors--Legal status, laws, etc.--United
States--Popular works. | Contracts for work and labor--United
States--Popular works. | Independent contractors--Legal status, laws,
etc.--United States--Forms. | Contracts for work and labor--United
States--Forms.
Classification: LCC KF898 .F57 2020 (print) | LCC KF898 (ebook) | DDC
346.7302/4--dc23
LC record available at https://lccn.loc.gov/2020002117
LC ebook record available at https://lccn.loc.gov/2020002118
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Acknowledgments
Many thanks to:
Aaron Hotfelder, Marcia Stewart, Barbara Kate Repa, Amy DelPo,
Marguerite Fa-Kaji, JinAh Lee, and Micah Schwartzbach for their
superb editing.
Jake Warner for his editorial contributions.
Fred Daily for many helpful comments on federal tax law.
Robert Wells for thorough proofreading.
Thérèse Shere for the helpful index.
About the Author
Stephen Fishman has dedicated his career as an attorney and author to
writing useful, reliable, and recognized guides on taxes and business law
for small businesses, entrepreneurs, independent contractors, and the
self-employed. He is the author of 20 books, including the following, all
published by Nolo:
• Working for Yourself: Law & Taxes for Independent Contractors,
Freelancers & Gig Workers of All Types
• Consultant & Independent Contractor Agreements
• Deduct It! Lower Your Small Business Taxes
• Home Business Tax Deductions: Keep What You Earn, and
• Tax Deductions for Professionals.
Stephen has also written hundreds of articles and been quoted in The New
York Times, The Wall Street Journal, Chicago Tribune, and many other
publications. His website is www.fishmanlawandtaxfiles.com.
Table of Contents
Your Legal and Tax Guide to Hiring and Working with
Independent Contractors .......................................................................................................................1
1 Benefits and Risks of Working With Independent Contractors ..................................5
Benefits of Using Independent Contractors ..................................................................................6
Risks of Using Independent Contractors ......................................................................................10
2 Tests for Workers’ Status .......................................................................................................................17
When a Legal Test Is Necessary to Determine a Worker’s Status .................................19
The Common Law Test .............................................................................................................................20
Factors for Measuring Control of Your Workers ......................................................................22
Evaluating a Worker’s Status Under the Common Law Test ...........................................35
Economic Realities Test ............................................................................................................................39
ABC Test .............................................................................................................................................................41
3 How the IRS Classifies Workers ........................................................................................................43
Four Steps to Classification Under the IRS Rules .....................................................................44
Step 1: Check Statutory Independent Contractor Rules ...................................................50
Step 2: Analyze the Worker Under the Common Law Test.............................................53
Step 3: Check Statutory Employee Rules .....................................................................................75
Step 4: Check the Safe Harbor Rules ...............................................................................................83
4 IRS Audits .......................................................................................................................................................101
Why Audits Occur ....................................................................................................................................103
Audit Basics ...................................................................................................................................................104
The Classification Settlement Program (CSP) ..........................................................................111
Voluntary Classification Settlement Program (VCSP) .......................................................115
IRS Assessments for Worker Misclassification ........................................................................118
Penalties for Worker Misclassification ..........................................................................................125
Interest Assessments ................................................................................................................................127
Criminal Sanctions .....................................................................................................................................128
ACA Penalties ...............................................................................................................................................128
Retirement Plan Audits ..........................................................................................................................128
Worker Lawsuits for Pensions and Other Benefits ...............................................................130
5 State Payroll Taxes ...................................................................................................................................133
State Unemployment Compensation ...........................................................................................134
State UC Classification Tests ...............................................................................................................139
State Disability Insurance ......................................................................................................................157
State Income Taxes ....................................................................................................................................157
California Worker Classification Rules (AB 5) .........................................................................160
6 Workers’ Compensation ......................................................................................................................175
Basics of the Workers’ Compensation System.........................................................................176
Who Must Be Covered...........................................................................................................................180
Exclusions From Coverage ...................................................................................................................180
Classifying Workers for Workers’ Compensation Purposes ...........................................186
If Your Workers Are ICs .........................................................................................................................198
Obtaining Coverage .................................................................................................................................201
7 Health, Safety, Labor, and Antidiscrimination Laws ......................................................203
Affordable Care Act .................................................................................................................................205
Federal Wage and Hour Laws ............................................................................................................207
Federal Labor Relations Laws ..............................................................................................................214
Family and Medical Leave Act ...........................................................................................................216
Fair Credit Reporting Act ......................................................................................................................216
Antidiscrimination Laws ........................................................................................................................217
Worker Safety Laws ..................................................................................................................................221
Immigration Laws .....................................................................................................................................222
8 Intellectual Property Ownership .................................................................................................223
What Is Intellectual Property?............................................................................................................224
Laws Protecting Intellectual Property ..........................................................................................224
Copyright Ownership .............................................................................................................................226
Trade Secret and Patent Ownership .............................................................................................233
9 Strategies for Avoiding Trouble When Hiring ICs ............................................................235
Hiring Incorporated Independent Contractors .....................................................................236
Employee Leasing ......................................................................................................................................244
10 Procedures for Working With Independent Contractors ..........................................253
Before Hiring an IC ...................................................................................................................................255
While the IC Works for You .................................................................................................................261
After the IC’s Services End ...................................................................................................................265
11 Independent Contractor Agreements .....................................................................................277
Using Written Agreements .................................................................................................................279
Drafting Agreements ..............................................................................................................................283
Essential Provisions ...................................................................................................................................290
Optional Provisions ...................................................................................................................................316
Sample IC Agreement .............................................................................................................................324
12 Finding Legal, Financial, and Other Help Beyond This Book .....................................331
Finding and Using a Lawyer ................................................................................................................332
Help From Other Experts .....................................................................................................................334
Doing Your Own Legal Research ......................................................................................................335
Appendixes
A How to Use the Downloadable Forms on the Nolo Website ....................................343
Editing RTFs...................................................................................................................................................344
List of Forms Available on the Nolo Website ..........................................................................345
B Contractor Screening Documents ..............................................................................................347
Independent Contractor Questionnaire ....................................................................................349
Worker Classification Checklist ........................................................................................................353
Index
...............................................................................................................................................................................357
