As we all know growth is an important metric and goal for any non-profit, business, ministry, educational institution, or other form of organization. Growth comes in many forms. However, with any kind of growth comes the inevitable need to sustain that growth with the right personnel to ensure an organization has the right skills and personalities needed to serve its founding mission.
However, when considering adding teammates, firms, and other necessary personnel to your arsenal it's important to consider their legal and financial classifications. Don’t worry, we break it all down and make it easy to understand.
Most personnel are classified by the United States Internal Revenue Service (IRS) as either Employees or Independent Contractors. Therefore, it is important to know the differences between each one and how to maintain a proper working relationship with each as each can be a valuable part of a team. In addition, it is important to be aware of these distinctions as they set the tone for the working relationships in our organizations but also because there are serious legal and financial consequences to an inappropriate intermingling of statuses.
The IRS states “If an employee is mistakenly classified as an independent contractor and the employer has no reasonable basis for doing so, the employer may be held liable for employment taxes for that worker.” See IRS Publication 15A, Employer's Supplemental Tax Guide.
The reverse also applies if an independent contractor is treated as an employee than said Employer can lose the tax benefits they obtain and become liable for taxes due to the misclassification. However, it certainly isn’t all negative. Understanding the differences in relationships designated in the tax code and in Federal Law can ensure a positive healthy working relationship for all allowing workers in the vineyard to work side by side justly and with dignity regardless of their status as an employee or independent contractor.
So how can I tell the difference you might ask?
An Employee is “anyone who performs services for you is generally your employee if you have the right to control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.” In exchange for this control are important financial obligations such as Federal and State employment taxes like Medicare, Social Security Tax, FICA, etc. There is a balance here between control at the price of greater costs. It is for each organization to weigh the best option for them. If complete control is what you are looking for than an employer to employee relationship may be the way to go. This does allow for greater control over the work and the ability to build a custom culture amidst the team.
An Independent Contractor, however, is defined as “Persons or organizations such as doctors, veterinarians, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, [these persons or organizations] are generally not employees…” The IRS continues by stating:
“The general rule is that an individual, a business, or an organization is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.”
In this form of relationship, you have a little less control but at the benefit of less cost in tax obligations as well as more specialized expertise as those who work in professional service firms and other entities often have a high level of expertise as they experience a battery of different situations, clients, and services in their field making them specialized and seasoned professionals. If you are looking for an easy to manage, professional relationship with seasoned experts in their field and lower tax obligations than this may be a compelling option.
In summary, the IRS stipulates the main differences between these two categories are in three different areas of control: Financial and Behavioral Control as well as the type of Relationship established. In both cases, employees are being paid but the definition explains the meaning by stating that if you control how, when, where, and other details of labor then you effectively have established an employee to employer relationship. In an independent contractors case, you can, of course, establish what service is needed and stipulate the end result desired but the when, where, and how, and/or details of service are a matter of trust that permit the independent contractor to best render service on your behalf. Now, this can seem a bit scary or concerning at first, but the truth is we obtain services in this way every day. For example, if we go to a Bank we select from a predetermined set of services the ones that best fit our needs. But we ultimately do not direct precisely which side of the vault our money is stored or which employees may interact with said funds, or whether or not the funds are manually counted or machine counted, etc. Instead, we understand and trust these professionals are trained to do this work and they do so appropriately handling our funds with care and caution. The impetus or motivation for doing so is the need for repeat business and positive enduring business relationships in the future. The end result usually being a positive and convenient storage of our funds with FDIC insurance, the ability to write and cash checks, the ability to transact business more efficiently, convenient debit card use, and many other perks that we may not be able to obtain otherwise. The mutual partnership of service provider and service receiver yields benefits to both that otherwise would not be attained. Even in commerce, the Lord provides opportunity for fraternity and equity among persons. In our example, each individual bank is different and their fees and features all differ, however, the benefits are real. It makes sense why most of us prefer to store our money in a bank rather than under the mattress.
All that said, the relationships with human persons are unique and it is ultimately up to the employed (employee or independent contractor) and potentially employing entity what kind of terms and relationship is agreed upon together at the start of the relationship. But what is important is that the type of relationship be in compliance with federal law and more importantly that human dignity is upheld on both sides. Recognizing that we are meant for mutuality rather than competition allows for peaceful agreement in business and across many aspect of our lives. Our faith teaches most beautifully that human persons are sacred to the Lord so no matter who it is we hire or bring on board the relationship we employ should honor the employer and respect the rights of employed persons or groups of persons (entities) mutually. In this way, we become warm salt and light amidst the cold backdrop of corporate secularism that often discards human life and labor as expendable rather than precious.
In this way, together, we serve the Gospel with excellence but also with a compassionate witness for our neighbor by each looking out for the best good of the other for this indeed is the definition of love.
Full Disclosure and Disclaimer: Here at Mastic Media, we ourselves are a Limited Liability Company (a corporate and diverse body of persons) and therefore classified as Independent Contractors. We work hard to help our clients make the legal requirements of a contractor so easy while aiding them to reap the benefits of lower taxation and highly skilled services. We formulate our services to become true partnerships in which we labor side by side in the vineyard with our clients to bear true fruit for the kingdom, for our client’s missions, and for the Lord. We do so by bringing tried and true methodologies, skills, and services developed over many years with hundreds of projects to bear in service of your vision and mission. Together, we form strategic partnerships that hit the mark. We love our work and our clients and we consider it an honor to relish in the “Joy of Mission” with all of you.