Dilemma of the Month: Switching a Full-Time Worker to a Contractor

Back Q&A Jun 6, 2019 By Suzanne Lucas
We have a longtime employee who asked to work from home after having twins. She’s been working from home for a year now successfully. She just got a new boss, and he wants her either in the office full time or to change her status to a contractor. Can we do this? How much do we pay her as a contractor? She currently makes $100,000 a year.

The answer is simple: No, you can’t do this.

To be a contractor, you have to meet certain criteria. You can’t simply say, “I’d like this employee to be a contractor!” The federal government has strict standards, and California is even stricter than the IRS.

To be a contractor, the following has to happen:

  • She must be independent — she needs to determine how, when and where she does her work.
  • Her work cannot be part of the core business function.
  • She must be independently established and free to have additional clients. (And should have additional clients.)
  • She must use her own equipment.
  • Typically, the contractor bills the business.
  • There must be a written contract between the business and the contractor.
  • There must be an end date.

You can see, she’s not a contractor. She would be doing the same job with the same equipment, she wouldn’t have additional clients, and there wouldn’t be an end date.

The real question is why does this manager want to make her a contractor? She’s been successful at the job, so why make the change?

As the human relations representative, you need to get at the heart of why this manager wants to make this change. Are there problems with her performance? Does he have difficulty managing someone who works remotely? Are other people in the organization upset that she is allowed to work at home full time?

Understanding the problem can help you determine a solution. It’s possible her performance is fine, but it’s not great. If she’s meeting her goals, but just barely, while the rest of the team is soaring, then his concerns are justified.

Do you allow your employees to work from home?
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If he’s an old-school manager who likes to manage by butt-in-seat time and it frustrates him that he can’t see her, it’s time for a management training session. It’s 2019, and many people telecommute. Managing remote workers is a critical skill for most managers. Sure, there are some jobs that must be done face to face, but many do not need to be, and it’s a serious career-limiting move for this manager not to have this skill.

If others are upset, you need to look at the possibility they have good cause. If a good portion of the work has to be done on-site and it’s the unpleasant tasks, and the remote worker never has to do them, that makes sense. If they want to work at home, and the manager has said no, they can be legitimately jealous.

The solution can be to allow the other team members more flexibility, require the woman in question to work a couple of days a week in the office or reorganize everything.

Remote workers can be great, but there can be limitations. If the manager sees issues, the solution isn’t to change the telecommuter into a contractor, but find a solution that works for the business.

If there are serious problems with her performance that the previous manager ignored that could be corrected by bringing her into the office, then it’s possible to issue an ultimatum — but not one about being a 1099 worker. It would be, “Either work in the office, or we’ll have to let you go.” That can be a reasonable thing to ask, depending on the circumstances. However, if there have been no problems and she’s continuing to do a good job, her response will probably be, “Thanks, but no thanks.” Then you will be faced with replacing a good employee, and that is going to be expensive and time-consuming.

So get to the bottom of the “why” to help you come up with a solution. It needs to be a good and legal solution, and changing her to be a contractor is neither good nor legal.

If you’re looking to hire a contractor, remember that contractors must pay for their own benefits and pay their own self-employment taxes, so you need to increase the gross salary  considerably. Generally, contractors should ask for double their annual salary and settle for nothing less than one-and-a-half times it. So, even if it’s legal, it wouldn’t be cheaper.