Are Virtual Assistants Employees or Independent Contractors?


3-17-11-1

If you’ve been following the blog entries this week at USTaxAid.com, you know we’ve been focusing on the increased IRS scrutiny of the Independent Contractor vs Employee argument. Just to be clear, the IRS wants to prove your ICs are really employees.

When it comes to Virtual Assistants, there is one more reason why you will want to fight to keep the IC status: nexus.

In many states, simply having an employee in a state means you now owe that state taxes. But if you have an Independent Contractor, you don’t have nexus. This isn’t true in every state, which further adds to the confusion. The one thing you can count on though is that having an IC will improve your business’s bottomline. Have an employee means they pay more in tax and you do too.

If you have a Virtual Assistant do you have an Independent Contractor or a telecommuting employees? Here are some of the things the IRS might target to make that decision.

You may have an employee if you:

Provide training — If you provide training to your workers, this is a good indication that they are really employees.

Pay them for their time – An independent contractor simply does work in his or her own way. There is little need for meetings, especially team-building ones, except for progress reports.

Instruct on minutiae – Don’t tell your IC how to do his job. I know you spent a lot of time developing your step-by-step procedures, but requiring your IC to follow them means you have an employee, not an IC.

Require certain hours –You cannot require that an IC be “open” or “available” during any specific hours that they are not paying you.  The IC should have her own system in place to track time if she’s charging hourly instead of by package. Furnish software or supplies –Do not provide any software, supplies, cell phones, or even a special email address in which to conduct business or the IRS could decide that you have an employee. It is tempting and I have done it myself, but I am second thinking this due to this rule.

Assign a title  – Don’t list your ICs on your website, office door, or anywhere that indicates they are part of your business.

Get ready for the IRS independent Contractor audit that may be coming your way with Winning the Independent Contractor Agreement .


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3 Comments so far:


On March 23rd, 2011 | 1:54 am
Danielle Keister said:

I am so pleased to see this blog post. At my organization, we have been trying to educate both clients and Virtual Assistants about the difference between an employee and a Virtual Assistant for many years. You can read our article on the topic here: http://www.virtualassistantnetworking.com/vavsemployee.htm

I think what confuses people is the term Independent Contractor. They think it means there is some third kind of classification where they get an employee they don’t pay taxes. They don’t understand that you don’t get to choose to pay someone as an IC. There are only two classifications: someone is either an employee or they are in business, regardless of what term they might use (e.g., self-employed, freelancers, IC, etc.).

Many VAs don’t understand themselves that independent contractor is simply another word for self-employed BUSINESS OWNER. They literally think they are some sort of telecommuter, rather than a business owner. They then perpetuate the problem by working with clients as if they were employees.

And now we have virtual staffing agencies and multi/team VA businesses who are farming out VAs just like any temp agency yet paying them as ICs and multi/team VA businesses that are listing these independent contractors on their websites as part of their staff and team. But you can’t tell them they are really putting themselves on the IRS radar by doing that. They just stick their fingers in their ears and shout lalalala, LOL.


On March 25th, 2011 | 1:54 pm
Diane Kennedy said:

Thanks Danielle. This is really good information especially as so many people are advocating the use of virtual assistants. I love having a VA, but you’ve got to do it right!


On June 11th, 2011 | 11:42 am
How Contractors Pay Employees Could Be a Problem | USTaxAid Services said:

[...] Are Virtual Assistants Employees or Independent Contractors? [...]



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