Ever thought about the difference between an employee and an independent contractor? If you're a freelancer or a small-business owner, you have--and for more than just legal reasons.

Every once in a while I'm offered a guest post I can't turn down. Here's one from Jared Burden, a Virginia-based attorney who counsels early-stage clients on raising capital and other growth issues, and companies of all sizes on contracts, transactions, and intellectual property.

Here's Jared:

I am seated, like hundreds of thousands of others in this country at this moment, in a coffeehouse. Of Monsters and Men, The Head and the Heart, and Mumford and Sons, all the usual suspects, play softly. One headphoned Millennial near me is locked into his screen, probably writing code, while a woman across the room has spreadsheets up on her laptop and has just greeted a client at her table.

One guy, in a group of three, is actually drawing on a napkin.

Likely, my coffeehouse-mates are not employees of anyone, but instead are independent contractors. I know contractors who are one or two technicalities away from being an employee, performing their work for just one client, while others juggle numerous dissimilar engagements with timeframes long and short. Some work in teams brought together by platforms like Google Hangout and some go through a week without talking with anyone but their client and their significant others.

The labels given to independent contractors are legion, including freelancer, of course, but also Citizen of the Free Agent Nation, participant in the On-Demand Economy, "solopreneur"....

Some contractors say that they enjoy the freedom of doing things their own way and on their own time--that the only performance review they want is the one given to them directly by their client. Daniel Pink famously summarized the motivations of free agents as mastery, purpose, and autonomy. The motivation to get good at what you do and to find meaning in it--with the room to figure out how to get there.

No one can explain where self-motivation comes from. Either it's there or it isn't. It has always been thus. And some of the folks sitting right near me right now have it.

One software developer doing work for Microsoft listed the benefits of being an independent contractor as flexible hours, safety from office politics, fewer tedious meetings, the opportunity to do overtime (she was paid hourly), and a variety of experience gained as she went from client to client over time. She also noted that the "permanent" employees doing the same work she was doing lived day-to-day with the knowledge that "permanent" doesn't really mean permanent anymore.

It's not just the self-motivators who doff their fedoras to independent contracting. Many companies think it works for them, too. It offers flexibility, the ability to be nimble and plug people into specific needs that arise with less friction and inefficiencies.

Many companies also think it's a good thing to have a smaller number of people eligible for overtime and reimbursement of job expenses, and to have fewer employees to trigger state and federal income tax withholding obligations. The employer-employment relationship is rife with legal risks, such as accusations of sexual harassment and racial discrimination, as well as a higher risk of being held responsible for what the person may negligently do to others in the course of the day. And some employers are happy to simplify their corporate life by having contractors do as much of the work as possible.

The lines can get blurred. Some companies just call a worker an independent contractor, have the person sign a boilerplate agreement, and then spike the football, thinking the matter is settled.

And then they tell the person how to do their job.

The risks of doing that, in terms of what the IRS and other agencies can do to an employer that crosses the fuzzy line, are many. It's a topic beyond the scope of what I can write about sitting at my long coffeehouse table. (The barista tells me they are going to be closing soon.) It suffices to say that lines are arguably moving in the wrong direction for companies wanting to push the independent contractor line to its limit.

Although there are multi-bulletpointed standards that agencies use to analyze these situations, at its most basic, it comes down to this: Regardless of what the company calls the relationship, does its have the right to control not only the result of the work but also the details of how the employee does this work?

Corporate control is a rabbit hole of a topic. I just read a post by a blogger whose gig it is to offer advice about how to manage employees in a traditional, hierarchical corporate culture.

The blogger was horrified by one high-performing employee's story of being reprimanded and given a warning by her human resources department for routinely taking too many trips to the bathroom in the course of the day. The employee asked what she should do in the face of this stern criticism, which contrasted troublingly with a history of excellent performance reviews from her immediate supervisor. The blogger told her to run from her job as fast as she could.

But one person who runs a small manufacturing plant and employs several fabricators, who each must meet certain production targets, wasn't so understanding, and in fact was pretty heated up about it. I have not corrected grammar or syntax:

When your productivity is lower than what my company requires because of your excessive BR breaks, I'd fire you. I have been searching for what my rights as a company is for employees taking advantage of "bathroom breaks". This is whats wrong with America's workforce. If your bathroom breaks are even being discussed then 99.9% YES you're in the bathroom too GD much. You have a RESPONSIBILITY to WORK when you are PAID to work. I have guys that clock in at 7 AM and go straight to the bathroom, GROWN MEN. That is taking advantage of your company and stealing time.

It goes without saying that human beings are often control freaks. Many of us would be lying if we didn't admit that we were--at least at some level, at least in some benign and well-meaning way.

The tendency to control replicates itself in the companies we run and manage. Controlling managers are rife in companies, especially in closely held companies run by owners straining for success with every muscle. It's not totally a bad thing. Steve Tobak wrote a post for CBS Moneywatch with the provocative title "Why Control Freaks Are Natural Leaders." Among the reasons he gave was that "By nature, they're results-oriented problem solvers."

Let's face it, that's a really important thing in business, in the nonprofit world--heck, in anything.

Many early stage companies in the midst of rapidly scaling up lean heavily on independent contractors for all of the low-friction reasons I mentioned above. But they also want to provide their customers with a consistently high-quality experience, which is a challenge when the customer's sole point of contact with the brand is one person performing the services. It might seem entirely rational, from a business perspective, to try to control this situation.

The rubber has recently hit the road with Uber. Many solopreneurs are Uber drivers. They ride the streets when they want to work, use their own car, pay for their own gas and vehicle upkeep, and take routes of their own choosing.

Yet Uber has been slammed again and again by lawsuits with plaintiffs and savvy lawyers who claim that Uber drivers are actually employees, and that Uber should (among other things) reimburse their drivers for their expenses. (Uber says it is just a tech company, and its drivers are, well, independent.) The hot home-cleaning startup Homejoy actually shut down earlier this year in the face of several worker misclassification lawsuits.

The barista is now leaning on his gleaming espresso machine, staring at me, and the code jockey is putting his laptop in his bag. Why am I still sitting here?

It's because I am puzzling over something I just read in a Bloomberg article. The coffeehouses are full of creatives and the on-demand economy appears to be thriving, yet according to this article, the statistics report that "the estimated number of people doing 15 or more hours per week of independent work fell in 2015." This is because the economy keeps getting better and more and more companies are hiring--hiring true employees. "Some independent workers are finding that a full-time job with benefits looks pretty good. The world of work is changing, but it hasn't changed so much that people no longer accept attractive job offers," the article says.

So, it seems to me that this is how it shakes out:

  • Many companies often want to call their people independent contractors, for legal and financial reasons, but still control what they do and how they do it.
  • The government, wanting to collect taxes and police bad behavior, has a bias toward moving a lot of these workers back across the line.
  • And the members of the Free Agent Nation? They like the freedom of doing what they want, when they want to do it. They like being trusted by the people who hire them that they will do their job and do it well. But when it really comes down to it...many would really still rather be employed. They would go back to it in a New York minute. Security has its allure.

As I prepare to zip up my backpack, I have a thought. If it's clear that companies are running big risks by being control freaks, and if it's clear that free agents like the feeling of freedom, there is room for a bit of a leap.

Employers should not just treat their independent contractors as independent contractors. They also should treat their employees the way they should be treating independent contractors.

The motivations that make free agency feel so right to those in the coffeehouse (at least when the check comes in the mail) are inside employees too--maybe some more than others, but they are there.

Most of the people who were working in the coffeehouse today had all the freedom in the world to figure out how to deliver their required results. Most were trusted to figure it out.

Employees, too, like to be trusted. After all, a good job is a good job.

Published on: Dec 11, 2015
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