Is there a future for temporary help?

USA Today (Society for the Advancement of Education), August, 1994

For small companies or seasonal businesses, the hiring of full-time employees can make poor business sense. When extra personnel is needed, many firms rely on a temporary or part-time labor force. While American business has embraced the value of the temporary worker, the Internal Revenue Service continues to develop ways to eradicate these positions.

The changing face of the American worker has made the impact of this effort even more dramatic. Those who have been laid off and unable to obtain part-time jobs, families who require a part-time income to stay afloat, and entrepreneurs struggling to get a start are affected as well. The IRS wants these positions eliminated and those who hold themselves out as independent contractors declared to be employees.

"Social Security taxes, Federal withholding taxes, and unemployment insurance are three reasons why the Federal government wants to see all workers treated as employees instead of as independent contractors," explains Barry H. Frank, a tax attorney with the Philadelphia-based law firm of Mesirov Gelman Jaffe Cramer & Jamieson. "Every year, the Internal Revenue Service claims that it loses more than $20,000,000,000 in payroll taxes from companies that utilize the services of independent workers instead of adding employees to their payroll."

The IRS and the Treasury Department are cooperating to change the status of as many temporary and part-time workers and independent contractors as possible. They already have reclassified millions, from independent, part-time, or temporary status to that of an employee. The IRS uses various checklists when classifying them. The most frequently utilized is a 20-point one that provides the basis for distinguishing between an independent contractor and an employee.

Jeffrey Cooper, a litigator with the law firm, advises clients to take the questions seriously and to answer with caution. "The government criteria is, at best, vague, but businesses who completely ignore the guidelines may find themselves the target of an audit or a compliance check and in danger of paying substantial back taxes, interest, and penalties. What companies need to look at is the who, what, when, where, and how of the working situation. In other words, does the company have the right to control the performance of the job? If the answer is yes, to the IRS, it smells like employment."

Frank points out that "Industries such as health care and trucking, as well as passenger transportation and data processing, have been hit especially hard by the IRS's stringent guidelines. Companies in these industries have had to take a serious look at the assignments they can accept and workers have had to be discerning when deciding which jobs they can accept." Other industries that are increasing their use of freelance and temporary workers--such as engineering, architecture, publishing, and advertising--also are at risk.

"If you make everyone an employee, you shut down the entrepreneurial spirit, and that is a terrible offense against the American worker. We understand a few people may take advantage of the situation, but we need to protect the tens of thousands that have built successful businesses using the temporary and independent worker or that have started out through independent contractor or part-time assignments," he argues.