The Association for Main Street
Accountants and Tax Professionals.

Employee or Independent Contractor?

Is it Time to Convert Employees
to Independent Contractors?

Shifting to Remote Work Creates New Service Opportunities

By Jon A. Hayes, Executive Director
Michigan Tax and Accounting Professionals
December 15, 2020 - When the COVID pandemic hit in full force last March, companies large and small were forced to move any employee who was not “essential” to a remote, work-from-home system. For many, the conversion was literally made on the fly with little preparation, so companies used existing oversight methods to manage the new “remote employees.”
Within a week after the shift, businesses faced a new reality: requiring and enforcing hourly schedules for many workers became impractical. Employees were pushing back hard against the hourly restrictions as they struggled to take care of children’s home and educational needs during the same hours they were required to work. They pushed for flexibility in completing their job tasks by showing employers those tasks were deadline-oriented and it didn’t matter when the tasks were completed so long as it came on or before the deadline. On the whole, they backed it up by not only meeting deadlines but also by doing more to insure they had the time to deal with increasing non-work demands.
This quickly shifting landscape also presented companies, especially small companies, with an opportunity to re-imagine their organizations and save money by converting employees to independent contractors. Many government and independent business tracking entities report that new business start-ups have increased during the pandemic and have exceeded numbers from 2017, 2018, and 2019. Analysts say many of the start-ups resulted from employees being switched to remote work and then deciding the independent contractor avenue was the best path moving forward.

Differentiating an Employee from a Contractor
The Internal Revenue Service differentiates an employee from an independent contractor as follows:
“An individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax. You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.“
Learn more: IRS Guidelines for Independent Contractors

More Resources for Insuring IC Designations and Compliance
Here is another good general guide that can help differentiate an employee from an independent contractor:
How to Tell if a Worker is an Employee or Independent Contractor
As a Michigan business, there are also Michigan labor laws that impact the designation of a worker as an independent contractor. Review those laws and guidelines here:
Michigan Independent Contractor Laws and HR Compliance
Probably most important, here is a website that can help you create and customize independent contractor agreements to insure you’re legally covered should you be questioned by a government entity:
Free Resource for Creating Independent Contractor Agreements

Accounting and Tax Firms are Uniquely Positioned to
Consider Converting Certain Employees to Contractors

Many of the services provided by small accounting and tax practices are deadline-driven and don’t require a pre-determined time schedule or defined number of hours to complete. Examples could include payroll specialists, tax preparers, bookkeepers, and financial advisors/planners.
If you identify employees who can be converted to independent contractor status and such a conversion would be advantageous to both parties, you should not hesitate to use your business skills to best facilitate this switch by:
  1. offering to incorporate the employee as a business for the many tax-saving and liability-protection advantages it can bring;
  2. helping them create a business plan to insure their new business’ viability, and
  3. helping them expand their revenue potential by connecting them with other area businesses they could also contract with for those services.
In effect, you can give them the confidence to make that switch by mentoring them through the process.

IC Conversions are a Business Opportunity for Your Firm
You can be sure many of your business and individual tax clients have the same opportunity to convert employees or themselves to independent contractor status. Some may have already thought about it or simply need to be made aware of the possibility.
You can use your experience in making these conversions to offer this valuable service to those clients (and possibly their employers) and also seek referrals to any contacts they may have who are considering the conversion. That experience would insure compliance AND increase the chances that it would be beneficial to all parties involved.
It can also generate a very nice revenue stream into your business at a time when you can really use it.

MTAP P.O. Box 398 Bath, MI 48808-0398