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Keeping Your Contractors Independent: Five Practical Ways Businesses with Independent Contractors Can Prepare for the Affordable Care Act

The Affordable Care Act’s employer mandate is approaching quickly, which makes it even more important for businesses to properly classify their workers. Whether this employer mandate covers a business, and when it first becomes effective, depends on how many “employees” the business employs during a certain period. This means that, if a business mistakenly classifies an employee as an independent contractor, that can have major repercussions, including by requiring the business to provide health coverage when it otherwise would not. To make matters worse, government agencies are scrutinizing these employee classification issues even closer than before.

Fortunately, there are steps businesses can take to increase the chances that their contractors remain contractors. The independent contractor test depends on several factors, with no single factor making or breaking the issue. So, even if a business will have trouble satisfying some of these factors, it can still improve its position by ensuring it satisfies other factors that may be more practical to meet. The following are five steps businesses can take to improve their position on the independent contractor analysis, without significantly diminishing the benefits the contractors provide.

 5 Steps to Improve Your Independent Contractor Analysis

1. Let The Contractors Sweat The Details.
One of the key factors in the independent contractor test is how strictly a business controls a contractor. If the business exercises major oversight over how a contractor completes his or her assignments, it may inadvertently convert the contractor to an employee. Businesses can improve their positions by affording contractors discretion on how they perform their jobs, so long as they ultimately get the jobs done to the business’s satisfaction. For example, a cable company that employs repair technicians could allow the technicians to determine how they repair customers’ equipment, so long as they get the equipment repaired and receive a satisfactory feedback score from customers.

2. Replace Schedules With Deadlines.
Businesses also can improve their position on the “control” factor by allowing contractors to determine when they perform their work. Instead of requiring a contractor to follow a strict schedule, a business can require the contractor to complete the work by a certain deadline. This can help a business show that it does not exercise strict control, without sacrificing the need to get the job done on time.

3. Pay Contractors By The Job, Not By The Hour.
Another key factor is whether the contractor has the chance to profit from the work (or, conversely, incur losses). You can significantly improve your chances of satisfying this factor by avoiding any “hourly wage” for contractors, and instead paying them a set rate for each job. This also can help your business by making the associated costs more consistent and predictable.

4. Consolidate Part-Time Work To Utilize The “Seasonal Worker” Exception.
For businesses that have both contractors and part-time workers, you may be able to change your part-time staffing in a way that reduces your total “employee” count. The employer mandate coverage threshold does not include certain “seasonal workers” who work for 120 days or less in a year. This means that a business can, in some cases, avoid the employer mandate by consolidating its seasonal or part-time work into a smaller time period. For example, if a retailer usually employs 45 full-time workers, and adds an additional 10 employees from Sept. 15 to Jan. 15 to handle the holiday busy season, it could potentially avoid the employer mandate in the future by consolidating the seasonal work to employ 12 seasonal employees from September 20 to January 10. For businesses in retail, agriculture, construction, and other industries requiring seasonal work, this may provide additional flexibility to avoid the ACA’s play-or-pay rules.

5. Protect Your Proprietary Interests With Agreements, Not Strict Rules.
Finally, courts are very reluctant to deem workers to be contractors when a business prohibits them from working for other entities. This can put some businesses in a difficult position if their contractors obtain information during their work that could benefit the business’s competitors. Moreover, these rules can make it more difficult to obtain the most-qualified contractors, who may not want to limit their options. Instead of maintaining these types of rules, businesses can largely accomplish the same result by requiring contractors to enter into agreements that protect your proprietary interests. Well-drafted agreements can prohibit a contractor from, for example, taking your customers, soliciting your employees, profiting from your proprietary information, or asserting ownership rights to intellectual property you hire them to create. In many cases, businesses will serve themselves better by allowing contractors to accept other work, but requiring them to enter into these types of agreements.

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