Bryant H. Byrnes, Esq.
By: Bryant Byrnes, Esq.
I recently had a client say to me, “I am getting killed by all the taxes and insurance that I pay for my employees. Is there anything I can do about it? Can I make them independent contractors? Or salaried employees? Anything?” This plaintive cry is common amongst business owners, including the battered contractor.
Is there in fact a way to reduce this cost by “converting” existing employees to independent contractors? What if one pays them on a per diem basis, and they pay their own taxes? If this is not possible, can the employer make them management – at least put them on salary to avoid overtime expenses? What qualifies an employee to have this designation?
I am not an employment attorney, but I did pose these questions to several attorneys who are.
Unhappily, there was a consensus that there is no truly bullet proofway not to get killed by taxes and insurance. (What follows is the briefest discussion of a complicated area of the law.)
Independent Contractor. What about making someone who is an employee an independent contractor? This is tough to do. The various tests by governmental agencies, including our pals at the IRS, are stringent. To be an independent contractor, the person must be truly independent in what he or she does. This includes having their own clients! He or she must, among other things, control projects, scope of activity, and time of work.
Salary. Salary per se does not do it. Counterintuitive as it sounds, most salaried employees still get – or should get – overtime after 40 hours a week unless they are in the “exempt” category.
Exempt. To be actually exempt from overtime requirements (and almost certainly salaried), the employee has to do actual management of other employees (at least two) at least 50 percent of the time. In the alternative, the person must do actual business related administrative work the majority of the time – this includes such things as banking, marketing, scheduling, etc.
In short, our system wants the employer to have wage employees and pay the employer taxes and workers’ compensation insurance.
What To Do? So it is a good question – but there is simply no easy resolution and/or magic bullet (from the employer’s point of view). So what can you do? You should consider keeping the employees to a 40 hour work week. For those predictable surges of work, get extra employees and keep those guys within the 40 hour work week.
Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the NARI Board of Directors. Questions? Please feel free to contact him by email at firstname.lastname@example.org.