Independent Contractors - Check your Website!

If You Use Independent Contractors, Check Your Web Site!

by Nancy E. Joerg, Esq.

For several decades, many companies have used independent contractors for a wide variety of jobs (examples: truck drivers, limousine drivers, doctors, dentists, welders, painters, teachers, salesmen, drywallers, carpet installers, musicians, and nurses).

Most companies who use independent contractors are aware that the legal definition of "independent contractor" basically means that the independent contractor is self-employed and not under the control and direction of the company. It is very important for a company to have the proper legal relationship with the independent contractors. The company might be audited by the IRS, Illinois Department of Employment Security (IDES), workers’ compensation insurance carrier, etc., and be liable for hefty taxes, penalties, payments, etc. (if the auditor reclassifies the independent contractors to employee status).

Most companies try to be careful about the written documents (such as independent contractor agreements, independent contractor orientation materials, IRS Forms 1099, etc.) that the company uses in order to do business with the independent contractor. However, there is a new danger area that could easily threaten the independent contractor relationship – the company’s Web Site!

Recently, a client of our law firm who uses many highly compensated independent contractors was audited by the IRS on the issue of the independent contractor status of these workers. These workers have many strong indicia of independent contractor status: business cards in their own business name, heavy business expenses that they pay for themselves, their own business offices, and well respected business reputations of their own. Some of these independent contractors are even incorporated. But, the IRS auditor, without the knowledge of the company, took it upon himself to check out the company’s Web Site. The company never told the IRS auditor that it had a Web Site, but the IRS auditor was enterprising enough to locate it for himself. Sure enough, he discovered a rather elaborate Web Site (with much information on it in order to attract customers).

The company never once thought about the information on its Web Site affecting its independent contractor relationship with its independent contractors. The company only thought about impressing potential customers with its Web Site. Unfortunately, what the IRS auditor saw when he looked at the company’s Web Site was information reassuring potential customers that the company took special pains to oversee the services of the independent contractors in order to ensure the highest quality performance. There were many phrases in the Web Site which led the IRS auditor to firmly believe that the company exercised the kind of control and direction over the independent contractors such as an employer would exercise over an employee.

This IRS case has not been resolved yet, and, hopefully, the company will ultimately prevail on the independent contractor issue. But, in the meanwhile, we have to deal with a highly motivated IRS auditor who is completely convinced, due to the unfortunate wording of the company’s Web Site, that these independent contractors are misclassified.

Moral of the Story… Check your Web Site carefully if you use independent contractors. Make sure that your Web Site shouts to the world that your independent contractors are not your employees in any way. It would be best for a qualified legal professional experienced in the issue of independent contractor status to carefully review your Web Site and make sure that, in your enthusiasm to advertise your services to prospective customers, you are not undermining your independent contractor relationship.

Nancy Joerg has a very popular 76-minute audiocassette tape called, "Practical Tips on Independent Contractor Status: The Basics and Beyond." This professionally recorded audiocassette tape is "easy listening." It is a tremendously powerful tool for any business that wishes to do "in-house training" of its management team as to the proper way to interact with independent contractors. The price is $36 each plus shipping and handling. If you would like to order this tape or any of our other audio tapes, please call Doris Baxter of Masterpiece Audio Productions at 630-587-6505.

Posted 11/16/2000