The Consultant's Desk

The Consultant's Desk
Poring over the details on your behalf

Tuesday, April 23, 2013

Terminology Issues About Consultants

Some months ago, a colleague ("Willie") posted that he was looking for a consultant to work on a project. The work would be performed from the consultant's home office. That sounded fine. But the more he talked about what he wanted to do, the more problematic things became. Many attempted to call his attention to the nagging issues but he would not hear any of the objections. Let's look at some of the troublesome matters that started surfacing so that your search for an independent consultant doesn't travel down the same path.

There was the implied statement (considering this was a consulting position) that the person would not be an employee. We hit critical mass when Willie said, "Am I being over the top by giving them 60 seconds to snap a picture of their office and send it to me?"

That's a great way to test whether the person is tech savvy enough to take a photo and then send that photo to someone within 60 seconds. You'd think it's one way to not get some stock, royalty-free photo of a virtual office that's been scraped from the Web.

Some attempted to point out that what Willie received may not be the actual home office of the consultant. It may be the conference room of a vanity office. Or it may be a booth at Starbucks. And then there's that royalty-free stock photo from the Web that the person is holding out as a representation of their home office. Some hinted that the request was a bit invasive.

What Willie started telling the rest of those who joined the conversation was what he was actually seeking. Some of it had tax ramifications. For example, "I just want them to confirm they have the capacity to work remotely. In my world, that would be someone who is organized and with a dedicated space to work." He wanted to know that it is clean, not cluttered, organized, and free of distractions (crying babies, kids running, barking dogs). He wanted some assurance that the consultant had all the tools necessary to complete the project. After all, Willie's brand was at stake. To these issues, he said, "If this was a 2 day project - then I could care less where they do it....but this will be for the entire year and I'll need some degree of reliability."

Someone in the conversation challenged Willie about the job description specifics by feigning an intent to announce the job to their circles and contacts. They raised important issues that were not included in the search criteria.
You're looking for a software developer for some unknown application, website, program. We're not certain of what language will be used to write the program but it needs to be developed, written, tested, legitimized, and delivered within a year. The work will be done remotely. The work CANNOT be done from anywhere except one's home - and a picture of that is required in order to be in the running. The pay is $50 per hour. No extras nor mileage.

Is that the job description? Does the candidate need any certifications or degrees? Do they need to show examples of other projects they've worked on and completed? Will there be any type of in-person interview or will they ever be required to do any travel - even to the home office? If so, how often and will that be covered?
The challenge was rebuffed as going in the wrong direction of interpreting the search. Friends of Willie with strong, confident voices, joined the rebuff. I teased Willie with speculation about other things besides the uploaded photo of their home office space within 60 seconds. And I conjectured that he would begin to add to the requirements of this requisition by demanding proof that it's a computer that belongs to the candidate. And then it will be the style of computer; then the model; then the peripherals it uses. Anything to narrow the player field. Willie's a good-natured guy (although he sometimes tries to sound gruff). He agreed that he would be adding knock-out requirements, such as those tossed out, in order to narrow the field to the

Employee cf. Contractor Conditions

Willie never said whether he would be paying for the tools and equipment that the consultant would be using for the project. Nor did he say whether he controlled when the work was to be done. The more he talked, the more it sounded like Willie was looking for an employee, not an independent consultant or independent contractor. If he actually wanted a consultant, he was heading for a cliff. There are certain conditions that define a consultant as distinguished from an employee.

Let's look at the definition of an employee as defined by Vanderbilt University. "An employee is an individual who performs services that are subject to the will and control of an employer-both what must be done and how it must be done. The employer can allow the employee considerable discretion and freedom of action, so long as the employer has the legal right to control both the method and the result of the services." Now taking that definition into consideration and comparing it to the screening requirements of Willie, it sounds like he's actually looking for an employee who has a rather confusing and vaguely deceptive title of "consultant."

Vanderbilt continues its discussion of employee vs. consultant by then explaining what an independent contractor is. "An independent contractor is an individual over whom the employer has the right to control or direct only the result of the work and not the means and methods of accomplishing the result." Given the various things Willie said about what he wants from his "consultant," it still sounds like he's seeking an employee.

It may be useful to know that the Internal Revenue Service has provided 20 questions to ask in order to parse out how the person should be viewed. (See IRS Revenue Ruling 87-41) If the situation is still cloudy after going through those criteria, it's recommended that the relationship be viewed as one of employer-employee and not that of retaining the services of an independent consultant.

Chances are, you're scratching your head and wondering about how to treat other types of relationships. Specifically, you're wondering how to manage situations in which you're trying to define the difference among Employee, Volunteer, Intern, or Independent Contractor. It's easy to find all of those answers in one place by visiting the definitions provided by International Catholic University's reference page.

Loose Use of Terminology

I still have the impression my colleague, Willie, was talking about hiring an employee and not an independent consultant. He contemplated exerting a lot of control over how the work was accomplished. Although not addressed, it appears Willie was very focused on the tax classification of the worker. Although he said he was recruiting for a consultant, it appears that was a misnomer. He took the time to clarify that what he wanted the photo to accomplish was prove that the candidate has a dedicated, organized work space at home. Given how he plans to narrow the field of those to be considered, I have the impression Willie's small requirement is going to get him into some big trouble down the road.

During a conference session this morning, I learned the IRS now has a hybrid of the 20-questions test which is referred to as the "economic realities test". From the consultant's desk, it appears the requirement to show proof of a dedicated work space is the first step of exerting control over the consultant. It appears some clarifying questions and answers need to happen. Then again, maybe Willie didn't tell us that he plans to pay for several benefits and perform withholding on behalf of his "consultant."