Reply #16: Nope, it's not. [View All]

[TahitiNut]

Particularly if the "contractor" acts as a supervisor or makes business decisions (rather than recommendations). Way back in the late 70's, in an amendment to a COBRA (Budget Reconciliation Act - Revenue Act of 1978 § 530(a)(1)), Sen. Pat Moynihan required long-term, exclusive 'contractors' to be employees of either the (sole) client or a 'safe-harbor' company that paid the employer's share of FICA. The amendment, supposedly targeted at agribusinesses who 'hired' their field labor as 'contractors' and evaded all FICA taxation, wound up decimating the army of MIS/IT contractors - placing them in the corrals of 'manpower' shell businesses who'd take 25-40% of the hourly compensation for providing essentially trivial bookkeeping. These 'manpower' companies typically had cozy little relationships with the Accounts Payable management of major companies, companies with often-politically-inspired "approved vendors" lists. Indeed, the ownership of these shell companies was often interlocked with 'client' companies, essentially creating labor holding companies.

The IRS has a 'litmus test' of such employment relationships - essentially a two-tiered questionaire. Among the things examined are the length of the contract (over 18 months?), whether there's only one client company, whether the 'contractor' supervises employees or has signature authority, and several other questions. Suits have been successfully filed for back benefits - including the employer's share of FICA taxes.

See http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
and http://www.topechelon.com/jobseekers/contractor_bigdeal.htm