From JDSupra, Christiane Kinney from LeClair Ryan discusses the ways in the entertainment in which workers are misclassified. She discusses unpaid or lowly paid “volunteers”, unpaid interns, and independent contractors. She writes:
Independent contractors, by definition, are self-employed, and because they are not employees, they are not subject to minimum wage laws, the person hiring them does not have to pay FICA (social security and Medicare) and FUTA (federal unemployment insurance) taxes, and they do not have to withhold federal income taxes for these individuals. For this reason, filmmakers and other employers are often tempted to reclassify employees as independent contractors in order to avoid taxes, benefits, and other liability. However, due to the potential loss of billions of dollars of taxable revenue, the I.R.S. has cracked down on misclassification of independent contractors in recent years as well.
As a general rule, an individual qualifies as an independent contractor if the payer has the right to control or direct only the result of the work, and not what will be done or how it will be accomplished. This is a heavily fact-dependent determination. In short, an independent contractor is not an independent contractor simply because that is how you referenced them in their deal memo.
The I.R.S. and the Courts often weigh the degree of control and independence exercised by the independent contractor in order to make a determination. For example, they may examine whether the company has the right to control how and what the worker does with respect to his or her job. They may look at whether the business and financial aspects of the workers’ job are controlled by the payer. They will also look at the type of relationship between the parties, and whether there are any written contracts between them, any employee-type benefits being offered, or any long-term working relationship which may denote an employee-employer relationship. Ultimately, the analysis is extremely fact dependent, and there is no magic number of factors that qualify a person as an independent contractor. If you are unsure, you can file a Form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding) and the IRS will review the facts and officially determine the worker’s status.