Obamacare–aka The Affordable Care Act–recently went into effect. Lost in the controversy over the federal budget and its implementation is an issue critically important to the meetings industry: using independent contractors instead of employees to get jobs done.
Why is this important? Because Obamacare requires that many businesses offer healthcare coverage to their employees. Companies looking to avoid this mandate by incorrectly classifying their workers as “independent contractors” when they are really “employees” can face significant penalties.
Who is an independent contractor? There’s no test that works in every situation. Instead, the IRS looks at each worker on a case-by-case basis and makes a determination based upon the relevant facts. The general rule is that an individual is an independent contractor if the company engaging her has the right to control or direct only the result of her work, but not what will be done and howit will be done.
So what does this mean for the meetings industry?
Suppose you’re a planner working full-time for a large company or association, but they pay you as an independent contractor and don’t withhold taxes? You might actually be an employee for Obamacare and tax purposes. This is particularly true if you work in an office provided by the company, don’t have other clients, attend the company holiday party, and have all of your travel expenses paid directly by the company.
If the company is not declaring you as an employee and providing medical coverage as required under Obamacare, the company may be subject to an IRS audit and sanctions.
On the other hand, if you’re a corporate or association planner with more than one client and you work independently, you are more likely an independent contractor. As such, how can you help your clients protect themselves from Obamacare issues?
Consider these steps to help your independent contractor status withstand government scrutiny:
• Incorporate your business. Even a planner company with one owner and one employee (i.e., yourself) can create a legal business entity. Speak with your tax adviser to see what kind of entity works best for you.
• Set up a home office and work from there when practical.
• Sign a written contract with each client, with clearly defined duties, results and payment terms.
• Invoice your clients for your pay and expense reimbursement, instead of having both paid to you automatically.
• Open a business credit card account and charge reimbursable expenses to that card. Charge personal expenses to other accounts.
• Set up a website for your business, and update it regularly. Not only does this make your business look more substantial, but it could help you get more clients.
Final Note: This blog is not “legal advice”; rather, it’s a discussion intended to make you think and draw your own conclusions. Legal advice can only be rendered after a discussion of your particular circumstances with an attorney competent in meetings law.
by Joshua Grimes