Control Is the Issue

The article “ Independent Contractor or Not ” ( JofA , May04, page 89), while addressing a real issue on which many CPAs must regularly advise their clients, is a prime example of where oftentimes JofA articles fall short and thus become of limited value.

While the article lists the 20 common-law factors, by far the most important factor and the most heavily weighted by the IRS, local payroll jurisdictions and courts is control. This concept is not mentioned until the end of the article. There it uses the term “exercising excessive control…

that will put the contracting party at risk of reclassification.” This is misleading. Excessive control is not the criterion; it is merely control.

Advising clients of the “potentially ruinous costs of changes” is not enough. They must be advised that to classify service providers as independent contractors they must contractually and practically act as if there’s an independent contractor relationship.

In the case study of a country club golf caddie, who was perfectly happy as an independent contractor until he got hurt, there should be some recommended actions. For example, there should be a contract between the caddie and the country club stating the relationship: The caddie can substitute another caddie if he so wishes, he is not covered by workers’ compensation or unemployment and he holds himself out to the public as a caddie.

The method of payment should be set up in such a way that it is clear the country club is merely providing a service to the caddie. The country club should have independent contractor guidelines applicable to all club-related service providers (from gardener to golf pro) that address conduct to members and guests, dress code and so forth.
The country club must be willing to step up to the obligations created by an independent contractor agreement—that is, by having less control.

The article also could have addressed the obvious conflict between satisfying the safe harbor requirements of section 530 of the Revenue Act of 1978 and a state or local determination that an employment relationship had been created.

The purpose of this letter is not to be specifically critical of this particular article. I could raise the same issue in any number of articles I have read over the past years. I would prefer more solution-based articles such as those I often find in “Technology Q&A.”

Karl S. Reinecker, CPA
Malibu, California