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Understanding the Role of the Independent Contractor and the Independent Contractor Agreement

What is an independent contractor? The answer might be more difficult than you think. In this article, Cordero Law LLC will explore the role of the independent contractor and the independent contractor agreement.

What is an independent contractor?

An independent contractor is a person contracting to do work for another person, and in doing so, does such work according to his or her own processes and methods while not being subject to the control of another, but remains subject to what is specified in a mutually binding agreement. Simple right? Just kidding, we know it isn't. 

In fact, the Internal Revenue Service has about 20 different factors that they consider when determining whether someone is acting as an independent contractor or an employee, despite being labeled as an independent contractor.   

The bottom line is, figuring out what qualifies as an independent contractor is not as easy as it sounds. However, because each one of these 20 factors fits into one of three main categories, by understanding these categories, you can better determine whether someone can be classified as an independent contractor. The categories these 20 factors fall into are behavioral control, financial control, and type of relationship between the parties. 

Behavioral Control

Does the person that hired the worker have control over how the worker does his or her job and what he or she does while working? If the worker gets his or her direction from the person that hired him or her, it is more likely that an employee-employer relationship exists instead of an independent contractor relationship. If the person contracted to do the work has more of a role where he or she is not supervised, it is more likely that an independent contractor relationship exists. 

Financial Control

Does the person that hired the worker have financial and/or business control over the worker? Factors indicating that the person who hired the worker has a significant investment in the work accomplished,  is reimbursing the worker for all or some of his or her business expenses, or has the ability to incur a profit or loss of his own in having the person do the work, lean towards an understanding that the worker is an employee rather than an independent contractor.

Type of Relationship

How do the parties perceive their relationship? If the worker receives employee benefits,  such as insurance for example, the individual is likely to be classified as an employee. 

The Independent Contractor Agreement 

Upon being hired as an independent contractor, an individual or entity will generally have those independent contractors sign an independent contractor agreement

Having an agreement in place can help establish whether the worker will be classified as an independent contractor or an employee. Going through the process of having an independent contractor agreement sets the inference that the parties had the intention to create an independent contractor relationship, rather than an employee-employer relationship. While having an independent contractor agreement doesn't guarantee that the worker will be classified as an independent contractor rather than an employee, it is nevertheless essential to have to protect the parties involved. 
 
An independent contractor agreement governs the working relationship between the independent contractor and the individual or entity who has hired them. Because independent contractor agreements can be very complex, detailing the full scope of the relationship between the parties, it is extremely important to have a business lawyer review your independent contractor agreement before you sign it, regardless of whether you are the worker or person hiring the worker. 

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Julian Cordero is an Attorney, Business Strategist, and Music Producer. Oh and he blogs too!  Julian is licensed to practice law in New York and is the Managing Attorney of Cordero Law LLC, a New York City based law firm focusing on Business Law, Entertainment Law, and Intellectual Property Law.

Forming a Business in New York vs Delaware - Why forming a Delaware LLC is a Mistake

Forming a business in Delaware used to always be the way to go. However, times have changed. Many people wonder whether forming a business in Delaware is more advantageous than forming a business in New York. In this article, the examination will be done with regards to Forming a Business in New York vs Delaware and why Delaware might not be the place to go. 

Usually, when a new client is looking to start a business, he or she will call me and tell me something along the lines of: "I would like to start an LLC in Delaware. Can you help me with that?"  And while I could easily agree and be on my way with my fees in hand - doing so would make me a bad business lawyer.

Is the Customer Really Always Right? 

A good business lawyer is not merely going to do everything his or her client wants (sorry clients)... at least not right away. While forming an LLC in Delaware might be the right option, it might very also well be the wrong, sometimes disastrous, option. A good business lawyer will ask questions, evaluate the situation, and offer advice as to what the best course of action should be.

But let me get off my soap box and get back to my original scenario. After getting this request to form a Delaware LLC, I usually ask two questions. The first is "Why do you want to form an LLC?" and the second is "Why do you want to do it in Delaware?". We will get into the LLC issues on a later blog post, but with regards to the Delaware question, I will usually get a response along the lines of "I don't know" or a variation of it.

Delaware Isn't What it Used to Be - The New General Rule for Where to Form a Business

The truth is, forming a business in Delaware used to be the way to go. However, a lot has changed. Now, hopeful business owners have many options to choose from and aren't as restricted as they used to be. 

As a general rule, I recommend that all new businesses or startups form a business in the state where they are operating. While forming in Delaware might be a good option, there are a lot of factors that need to be taken into account before being able to come up with that conclusion. For example, if your business is located in New York and you registered it as a Delaware LLC, your business does not have the authority to do business in New York. You would need to register that Delaware LLC as a foreign LLC in New York in order to be permitted to do business in New York. Essentially, the business would be paying double the registration costs when they didn't need to do so. And even worse, if they don't register as a NY foreign LLC, years down the line, the business will be responsible for years of back taxes and penalties it should have been paying as a NY foreign LLC. 

Advice Going Forward

This is not to say that there are no advantages to starting a business in Delaware. There are many reasons why starting a business in Delaware still makes sense, especially if you are not starting a run of the mill small business- however these reasons are rare and I only primarily see them in large scale businesses, not small businesses. The only way to know for sure whether it would be a good idea to form a business in Delaware would be to hire an attorney to help you make that decision. While hiring an attorney is by no means, a cheap undertaking, hiring a experienced business attorney to help you make the best decision for your future business is a invaluable investment. Consider hiring one to help you make this decision, among many others, in your next business undertaking.  

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Julian Cordero is an Attorney, Business Strategist, and Music Producer. Oh and he blogs too!  Julian is licensed to practice law in New York and is the Managing Attorney of Cordero Law LLC, a New York City based law firm focusing on Business Law, Entertainment Law, and Intellectual Property Law.  

New Business Checklist | A Comprehensive Checklist on Starting A Business in NY

Thinking about starting a business in New York? Reguardless of whether you are thinking about starting the next big startup that turns into a fortune 500 company or a small business, the legal implications of starting a business can be complex. As a result, Cordero Law is happy to provide you its "starting a business checklist" as a guide to help you along the way.