Who is a contractor?In a crackdown with serious...

MINDING YOUR BUSINESS

August 03, 1992

Who is a contractor?

In a crackdown with serious implications for companies and individuals, tax authorities are taking a closer look at whether independent-contractor status is being used as a tax dodge.

A company derives several advantages by calling someone an independent contractor. No payment of Social Security or Medicare taxes are made. States don't get contributions for unemployment and workers' compensation. Pension and fringe benefits aren't paid.

For the independent contractor, there is a greater opportunity to underreport income or overstate business deductions.

A company or individual in doubt could file a Form SS-8 with the IRS to get a determination.

Federal and state agencies use 20 questions to determine whether someone is an independent contractor. In most cases, an individual is considered an employee if the person:

* Follows the employer's instructions regarding when, where and for whom to work.

* Is trained by the company to perform duties in a certain way.

* Performs regular and continuous services for the company.

* Provides services that are vital to the company.

Taking charge

Are you a manager struggling to take charge? Harvard Business School Professor John Gabarro found that the process is characterized by predictable stages:

Taking hold: orientational learning ("How are things done around here?") and corrective change.

Immersion: in-depth analytical learning and virtually no changes.

Reshaping: little new learning but major structural change.

Consolidation and refinement: solidification of previous actions.

The cycle takes about three years.

Paying without cash

When Club Med wanted to reach the 6- to 11-year-old market last winter, it created a $1 million advertising campaign for the Nickelodeon Channel. But instead of paying in cash, it paid with credits -- 800 trips to Club Med.

That's the cash-free world of business. The corporate barter industry rang up $5.1 billion in 1991, up 12 percent from 1990. Before the recession, it was growing at an annual rate of 8 percent.

Fifty companies nationwide engage in corporate barter.

But there are risks. For example, when Financial News Network filed for bankruptcy last year, it owed Icon thousands of 30-second spots in exchange for equipment Icon had already bought for them.

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