Re: Independent Contractor v. Employee Status

Subject: Re: Independent Contractor v. Employee Status
From: John Gough <gough -at- AUSTIN -dot- ASC -dot- SLB -dot- COM>
Date: Mon, 3 Mar 1997 14:31:16 -0600

Deborah Rech wrote:

>I am interested in finding out how tech writers working as independent
>contractors are affected by the recent decisions the courts have made
>against companies who have misclassified employees as independent
>contractors. (Most notably the recent Vizcaino v. Microsoft case.)


IMO, the entire market was affected by the IRS rulings:
1. It is now much more difficult to obtain independent work
unless you own an incorporated business.
2. Overall, contractors are being undercompensated
due to contracting agencies working the fee spread.

A side-affect of the IRS decision was an explosion in the number
of contracting companies, who link employers with contractors.
This has proven to be bad for individuals, because the contracting
companies are motivated to maximize the spread between what
they charge an employer and what they pay a contractor.
A reasonable spread covers SS taxes, overhead, and a margin
of profit. It should not exceed 20 to 30% of the amount charged
the employer in most cases. Note that contracting agencies do
not provide sick leave, vacation, health benefits, or savings
plan benefits (some do if you have worked *continuously* for
them for a minimum period of time, but the nature of contracting
is short-term assignments).

In addition, contracting companies are reluctant to disclose
their spread. Most people don't have the knowledge or chutzpah to
ask for that disclosure. Agencies balk at disclosing it even when asked.
If they are such trustworthy people (many make a big deal of that), why
don't they disclose those terms?

Examples of abuse:
company charges employer $75/hr, pays contractor $22/hr
company charges employer $55/hr, pays contractor $23.50/hr

These are just the ones I know about personally. IMO, we should
make STC earn its fees--get them to lobby for legislation that
requires disclosure, or at least proclaim that it should be standard
practice in contracting. Historically, that is what a guild
(or professional society) is *supposed* to do. Look at the AMA
or ABA.

Overcharges by middlemen hurt both the employer and the contractor:
--the employer gets less employee than they are paying for
--the contractor, who does the work, does not receive fair compensation

Some larger corporations are now mandating a maximum spread, to keep
from getting low-level employees at sky-high prices.
I know of at least two contracting agencies that disclose their spread, but
they are not among the major national firms.

On the other hand, some large companies require a contracting agency
to be on their "approved" list. The net effect of such a policy is to reduce
competition, because the bigger agencies are better able to get on the
list. The same bigger agencies tend to charge bigger spreads.

I am in favor of a free market. A market that operates by concealing
information, intimidating the people who perform the work, and squeezing out
competition on a basis other than performance, is not free.

I know that some of the list lurkers are agency reps or agency owners.
Let's hear *your* side of the story.

John

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