I am going to set up an llc that will offer online language instruction and translation. My business partner and I are planning on hiring in...

Question

I am going to set up an llc that will offer online language instruction and translation. My business partner and I are planning on hiring independent contractors/freelancer teachers to tutor. Do we need to send a 1099 to them at the end of the year? Is it a bad idea to hire independent contractors to teach classes? All of the online language services I have worked for hire independent contractors and not employees. It seems to me that some of these companies may be classifying them incorrectly. I read the requirements of the independent contractor classification and saw that we cannot control the way they do their job. They will be setting their own hours and using their own materials/computer. We were planning on paying them through PayPal and setting the percentage of each class price that they will earn. We also created a document that goes over our recommended teaching methodology. We stated in it that it is not mandatory to follow the methods but that we suggest using them. Would any of this prove that they should be employees?

Answer

There is no black and white answer as to whether a worker should be classified as an employee or contractor. The determination is made at the discretion of the Department of Labor during an audit. The department takes into consideration various factors such as: (1) Is the worker's hours consistent from day today or can he or she come and go at his or her leisure ? (2) Does the worker have a designated workspace? (3) Is the worker working primarily under the supervision or guidance of the employer?

A bank teller is a good example of a typical employee. A company's accountant, on the other hand, is a good example of an independent contractor. There is an enormous gray area between these two examples.

Even though employees are more expensive to maintain than contractors, a finding by the DOL that a worker was improperly classified can come with heavy penalties and fines. I'm sure there is case law which would help guide you or your attorney, however, you haven't given me sufficient information with which to perform the research.

I hope this was helpful.

Answer

I agree with my colleague. It greatly depends and many factors are considered with the key element being control. I've seen examples where clients in your space were careful to explore many aspects to avoid misclassification then they send the tutors out wearing their company mark and logos...

If you get this wrong, it can be a huge a problem that I have seen happen before. At a minimum, find a lawyer to work with as I'm sure this also not the only legal concern and issue you will have moving forward right?

If you would like to discuss further over a free phone consult, feel free to contact me anytime that is convenient. Our firm is now referred by the American Bar Association (see under the New York section):

http://www.americanbar.org/groups/delivery_legal_services/resources/programs_to_help_those_with_moderate_income.html

Kind regards,

Frank

www.LanternLegal.com

866-871-8655

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DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed on the basis of this posting.