Info You Can Use: Employee or Independent Contractor

As usual, the folks at the Non-Profit Law Blog provide some useful links. I will quickly point out a short piece about the Senate has recently passing a jobs bill that will provide incentives to hire and keep employees.

The measure would exempt private employers, including nonprofit groups, from paying their share of Social Security taxes for employees they hire through the end of 2010. The new hires must have been out of work for at least 60 days.

They would get an additional $1,000 bonus if they kept the employee on the payroll for a full year

I had heard about this a few weeks ago, but it never occurred to me that this would be a real boon for the non-profit world where a little savings can go a long way. I wish I could remember where I heard it, but I was listening to a radio show where one of the panelists said he wished the money going to public works was directed to non-profits because you could create hundreds of non-profit jobs for every construction job created.

The main of what I wanted to discuss is examining the employment status of people who work for your organization. According to Jessica R. Lubar, a lawyer at Venable LLP, the IRS is undertaking a study of employment tax compliance. They will be focusing on three areas: worker classification, fringe benefits and officer compensation.

What I wanted to point out specifically was the issue of worker classification. I know of a number of organizations that call those who work for them independent contractors so that they don’t have to attend to any of the tax withholding details. However, if the IRS doesn’t call them the same thing you do, there could be a lot of trouble.

“A worker is considered an employee if the employer exercises the requisite amount of control over the employee under common-law principles. Over the years, the courts and the IRS have articulated certain factors that are considered in making that determination. The IRS organized the factors that are considered into three categories: (1) Behavioral Control – whether the business has a right to direct and control how the worker does the task for which the worker is hired; (2) Financial Control – whether the business has a right to control the business aspects of the worker’s job; and (3) Type of Relationship.”

If you have made a mistake in classifying an employee as an independent contractor, there is an opportunity to rectify that situation and obtain relief from the penalties of that mistake. Lubar outlines these in the entry. You would obviously want to consult a lawyer because I am already confused by the first of the three requisite criteria–not treating a person like an employee. That seems to me to imply you have been treating the person like an independent contractor which means you are in the clear.

Perhaps the distinction is in whether you contractually had the right to behavioral and financial control but never enforced it thereby treating someone as if they were an independent contractor when technically they were not.

Guess that is what the lawyers get paid to tell us.

About Joe Patti

I have been writing Butts in the Seats (BitS) on topics of arts and cultural administration since 2004 (yikes!). Given the ever evolving concerns facing the sector, I have yet to exhaust the available subject matter. In addition to BitS, I am a founding contributor to the ArtsHacker ( website where I focus on topics related to boards, law, governance, policy and practice.

I am also an evangelist for the effort to Build Public Will For Arts and Culture being helmed by Arts Midwest and the Metropolitan Group. (

My most recent role was as Executive Director of the Grand Opera House in Macon, GA.

Among the things I am most proud are having produced an opera in the Hawaiian language and a dance drama about Hawaii's snow goddess Poli'ahu while working as a Theater Manager in Hawaii. Though there are many more highlights than there is space here to list.


4 thoughts on “Info You Can Use: Employee or Independent Contractor”

  1. I’ve looked into this too, though I’m an administrator, not a lawyer. This is a common practice among theatre companies in the U.S., and IRS Publication 1976 says, in part:

    To establish that you had a reasonable basis for not treating the workers as employees, you can show that:

    • You treated the workers as independent
    contractors because you knew that
    was how a significant segment of your
    industry treated similar workers;

    Maybe the IRS’s study into these practices will yield different rules, but for now it seems to be an established (and okay) practice.

    • Hans-

      Yes, that is the third criteria the article I linked to mentioned. That actually seems to give you the benefit of the doubt because you didn’t know any better due to industry practice. I just felt it might be hard for a lot of arts companies to get past the first point because they will call people independent contractors but impose all sorts of restrictions. The only people I can see hitting all three are those who treated people like independent contractors but reserved the right not to.

  2. One thing I’ve learned over 20 years as an administrator is that very few workers employed by theatres can qualify as “sub-contractors.” The bottom line is that the employer does not get to define the relationship; “other employers” don’t get to do it, only the IRS does. It’s really not that hard to identify:

    If you pay a person a fee, and they work on it without any direction from you, and supply you with the result by an agreed upon date and time, they are a sub-contractor.
    If you expect that person to be in your building at certain hours,if you give them tools and materials to accomplish the task, they are employees. If they are directly responsible for the product you sell, they are employees.

    Office workers are employees; that includes receptionists, box office people, sales and marketing, PR, anyone you expect to be in the office, anyone you supply with a desk and a phone, anyone whose work you oversee on a daily basis are always employees.

    If you send the plans to an independent shop to build the set, that’s a sub-contractor. If you own a shop and hire people to use your tools, they are employees. Directors, choreographers, stage managers, and actors are employees.

    Your lighting designer is a sub-contractor; your master electrician is an employee. Your costume designer is a sub-contractor, but your wardrobe mistress is an employee.

    That’s the real measurement, and it has nothing to do with what one believes other people are doing.


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