This post is a continuation of last week’s topic and was written by Patricia Frame of Strategies for Human Resources, our guest author for our solopreneur blog series.
Recently, the US Department of Labor (DOL) issued new guidance on when a person is an independent contractor and when they are an employee. Even if you have your own company, if you are a solopreneur you need to understand the new rules to protect yourself. Under these rules, many legal reviews indicate that many independent contractors now will be considered employees instead.
Under the new guidelines issued July 15, 2015 for classifying such workers the DOL looks closely at what the ‘economic realities’ are to decide whether a worker is economically dependent on the employer or are actually in business themselves.
There are six factors which the DOL typically will assess in total and none are considered alone. These include:
- The extent to which the work performed is an integral part of the employer’s business
- The worker’s opportunity to manage for his/her profit and loss (not including ability to work more hours)
- The relative investments of the employer and the worker
- Whether special skills (business skills, not technical ones), judgement, and initiative are required to perform the work
- Permanency of the relationship
- Degree of control retained or exercised by the employer, not including flexible work options.
Certainly those solopreneurs who once were employees and then moved out to become consultants or contract workers AND who still work primarily for their old employer are at risk.
But you may be at risk also if:
- You have only 1-2 clients
- You work in a role where you are on-site at a client full-time or part-time regularly or serve as an interim executive
- You have not yet set your business up fully
- You are at risk under the factors mentioned above.
Whether you are obviously at risk or not, you should take precautions to ensure you can maintain your independent status, if you wish to remain independent. This could include:
- Documenting all your client engagements regularly with any agreements you sign, their business information, and the scope of your work for each client. Many of us sign non-disclosure or confidentiality or other agreements with our clients. Be sure you have copies of these as well as any agreements or contracts you have your clients sign.
- Establishing your business visibly within your community and field. This could include having a website or business profile on social media, the advertising you do, your business cards and other marketing materials, and so on.
- Maintaining required business licenses
- Having separate business banking accounts and other business relationships
Note that the DOL has stated that having a business incorporated is not in itself enough to prove you are a real business and not an employee.
All this advice seems simple and obvious, but often we know what we should do but we do not actually do it all. This is especially true if you started your solopreneur work as something to do until you could find a new job.
If you are re-classified as an employee, you lose the business deductions on your taxes although you may gain benefits from regular employment. The choice should be made by your decision and actions, not inadvertently.
If you need assistance and advice to ensure you are building a successful business, the Alexandria SBDC offers a range of services. Check our website for those which will help you succeed!