Full Version: Employee Vs Contractor Status
Hi everyone. I teach full time at a music store and all the teachers are independent contractors. The problem is every so often the man that runs the store asks me to become exclusive to him, and to bring all my private students into the store so they become his clients. He says that if I do that, then we'll have a better working relationship and he'll feel more comfortable promoting me to potential clients and in newspapers etc. One of the problems with this is that he doesn't want to employ me, he wants me to remain a private contractor and become exclusive. Another problem with this is that another teacher at the same store teaches on her own and there's never a problem with it. This could be because he's older and has more experience, but he gets treated with a lot more respect and I believe he ears more money hourly too. I personally don't believe anyone should be exclusive unless their job pays them enough money to live comfortably. Giving up the right to work in your field when you're not at the store is a big thing to give up. I told him a few a months ago that I'm not becoming exclusive because I can't afford to lose that money and he agreed I could keep teaching on my own. But every so often, he'll ask me to reconsider becoming exclusive. Is there a way to get him off my back and make a more solid agreement where I'm clearly defined as an independent contractor and command as much respect as the older teacher? I'm in my late twenties, but the other teacher that teaches at home is in their 50s. Thanks guys.
Hi Orlando
I've read through your description of the situation, and then read it again - and however many times I read it I can't see where the advantage is for you in giving in to this suggestion that you work "exclusively"!
Sure, you mention something about how the manager would "have a better working relationship" and "feel better promoting you" - but those are very vague promises! In the well-used phrase - "show me the money!" To get into that "exclusive relationship", you need to be offered a definite incentive - in terms of folding stuff!
Of course, stability of income can be very important too - sometimes it's better to take a deal that gives you a definite £500 per month, than one which might give you £1000 one month but then only £200 per month in the next two months. But this man is (as far as I can tell) not offering you this kind of deal. If he was offering you employment, that would be a different situation: this would pull all the benefits of employment (fixed salary, rights to stability of employment, protection against unfair dismissal, notice periods, holidays, pension, sick-leave) into the deal, to your advantage. But he's not.
Bear in mind also that (in the UK - I believe the US brought in a similar law) there is a tax law known as IR35. Under this relatively new law (1999? 2000?), if you work as an independent contractor, but only work for one client - which would be your situation if you agreed to work "exclusively" but still as a contractor - then the Inland Revenue considers you as a de facto employee. This means that all the tax advantages of being self-employed/a contractor are lost - you, him or some combination of both of you would be expected to pay all the PAYE tax, employer's Class 1 National Insurance AND employee's Class 1 National Insurance on every penny he paid you, as if this was a salary.
I don't know how strictly this law is enforced (my background is as an IT contractor, and I'm NOT - please note! - a professional tax adviser or lawyer capable of giving professional advice!) - but my feeling about it has always been that it's not worth running the risk of suddenly owing enormous amounts to the Inland Revenue.
The law was pretty clumsily drafted, at least as far as its application to my profession in IT is concerned - but the intention behind it was to protect people from precisely the kind of situation you describe: where someone (an "employer") attempts to get someone else to become their "employee", i.e. to have exclusive control over their work, without granting them the rights that employees are due.
You could use this as an argument to get this man off your back - tell him that if you work exclusively for him, but not as an employee, you AND HE will be running the risk of investigation by the tax authorities, and of being landed with, at best, an enormous bill for unpaid tax/National Insurance. By doing your own work independently of him, you're in fact protecting him from this kind of risk. That should put him off!
best of luck
seb
I've read through your description of the situation, and then read it again - and however many times I read it I can't see where the advantage is for you in giving in to this suggestion that you work "exclusively"!
Sure, you mention something about how the manager would "have a better working relationship" and "feel better promoting you" - but those are very vague promises! In the well-used phrase - "show me the money!" To get into that "exclusive relationship", you need to be offered a definite incentive - in terms of folding stuff!
Of course, stability of income can be very important too - sometimes it's better to take a deal that gives you a definite £500 per month, than one which might give you £1000 one month but then only £200 per month in the next two months. But this man is (as far as I can tell) not offering you this kind of deal. If he was offering you employment, that would be a different situation: this would pull all the benefits of employment (fixed salary, rights to stability of employment, protection against unfair dismissal, notice periods, holidays, pension, sick-leave) into the deal, to your advantage. But he's not.
Bear in mind also that (in the UK - I believe the US brought in a similar law) there is a tax law known as IR35. Under this relatively new law (1999? 2000?), if you work as an independent contractor, but only work for one client - which would be your situation if you agreed to work "exclusively" but still as a contractor - then the Inland Revenue considers you as a de facto employee. This means that all the tax advantages of being self-employed/a contractor are lost - you, him or some combination of both of you would be expected to pay all the PAYE tax, employer's Class 1 National Insurance AND employee's Class 1 National Insurance on every penny he paid you, as if this was a salary.
I don't know how strictly this law is enforced (my background is as an IT contractor, and I'm NOT - please note! - a professional tax adviser or lawyer capable of giving professional advice!) - but my feeling about it has always been that it's not worth running the risk of suddenly owing enormous amounts to the Inland Revenue.
The law was pretty clumsily drafted, at least as far as its application to my profession in IT is concerned - but the intention behind it was to protect people from precisely the kind of situation you describe: where someone (an "employer") attempts to get someone else to become their "employee", i.e. to have exclusive control over their work, without granting them the rights that employees are due.
You could use this as an argument to get this man off your back - tell him that if you work exclusively for him, but not as an employee, you AND HE will be running the risk of investigation by the tax authorities, and of being landed with, at best, an enormous bill for unpaid tax/National Insurance. By doing your own work independently of him, you're in fact protecting him from this kind of risk. That should put him off!
best of luck
seb
IR35
The law was pretty clumsily drafted, at least as far as its application to my profession in IT is concerned -
It certainly created many anomalies, and is certainly full of illogicalities and unfairness, but I don't think you can say it was clumsily drafted. I think the people drafting it were very smart and knew exactly what they were doing. Overall I thought it was quite skilful, giving the tax authorities maximum leeway to interpret any conceivable circumstances in their own favour, and creating maximum fear in contractors.
but the intention behind it was to protect people from precisely the kind of situation you describe: where someone (an "employer") attempts to get someone else to become their "employee", i.e. to have exclusive control over their work, without granting them the rights that employees are due.
@begin(rant)
That may be what the Government stated publicly as the reason for these regulations, but if that had been the Government's real aim they would have created regulation to make it mandatory for employers to take the endangered categories of worker onto their payrolls as employees. Instead they created regulation that puts most of the risk and burden on the independent contractor.
The fairest solution would have been to recognize a third category of worker - taxed more heavily then the genuine self-employed - but less heavily than employees - in recognition of the financial risk and lack of employment protection.
The real reasons for IR35 were to catgegorize as many workers as possible as employees and so get the maximum possible tax revenue. (And incidentally to frighten a great many workers who are genuinely independent into paying tax as though they were employees).
I can only presume they needed the money to pay for bombs to drop on large numbers of innocent people halfway across the planet in countries that posed no threat to us. Or maybe it was to play for John Prescott's flat, Tony Blair's to-and-froing across the Atlantic, and Derry Irvine's wallpaper?
In general the government does not want independent contractors - at least not in the numbers they used to be found in IT and engineering. In fact it doesn't want you to have much independence at all. It would prefer a world in which there were only employers and employees ... preferably big employers that contribute to party funds and politicians welfare, and well-controlled employees with big mortgages, huge debts, and well established habits of consumerism.
@end(rant)
QUOTE(undertoad @ Jan 16 2009, 03:32 PM) 
The law was pretty clumsily drafted, at least as far as its application to my profession in IT is concerned -
It certainly created many anomalies, and is certainly full of illogicalities and unfairness, but I don't think you can say it was clumsily drafted. I think the people drafting it were very smart and knew exactly what they were doing. Overall I thought it was quite skilful, giving the tax authorities maximum leeway to interpret any conceivable circumstances in their own favour, and creating maximum fear in contractors.
QUOTE(undertoad @ Jan 16 2009, 03:32 PM)
but the intention behind it was to protect people from precisely the kind of situation you describe: where someone (an "employer") attempts to get someone else to become their "employee", i.e. to have exclusive control over their work, without granting them the rights that employees are due.
@begin(rant)
That may be what the Government stated publicly as the reason for these regulations, but if that had been the Government's real aim they would have created regulation to make it mandatory for employers to take the endangered categories of worker onto their payrolls as employees. Instead they created regulation that puts most of the risk and burden on the independent contractor.
The fairest solution would have been to recognize a third category of worker - taxed more heavily then the genuine self-employed - but less heavily than employees - in recognition of the financial risk and lack of employment protection.
The real reasons for IR35 were to catgegorize as many workers as possible as employees and so get the maximum possible tax revenue. (And incidentally to frighten a great many workers who are genuinely independent into paying tax as though they were employees).
I can only presume they needed the money to pay for bombs to drop on large numbers of innocent people halfway across the planet in countries that posed no threat to us. Or maybe it was to play for John Prescott's flat, Tony Blair's to-and-froing across the Atlantic, and Derry Irvine's wallpaper?
In general the government does not want independent contractors - at least not in the numbers they used to be found in IT and engineering. In fact it doesn't want you to have much independence at all. It would prefer a world in which there were only employers and employees ... preferably big employers that contribute to party funds and politicians welfare, and well-controlled employees with big mortgages, huge debts, and well established habits of consumerism.
@end(rant)
QUOTE(Mad Tom @ Jan 16 2009, 03:10 PM)
IR35
If you want lots of information about IR35, and how to fight it, then the place to go is the Professional Contractors Group (PCG), www.pcg.org.uk. I'm not aware of any music teachers who are members at the moment (like Tom I'm an IT contractor), but you should be able to get some help there.
Chris
Hi Tom
I agree with every single thing you say about IR35!!!!
Including what the Government require so much money for.... oh, let me see, bombs to drop on innocent people, disastrous IT systems (see ID cards for example... not that the fact that it'll be a bad system is the worst thing about it), bailing out the management of banks who screwed up our economy...
certainly not providing even minimal assistance to mature postgrad music students such as me, who put £11,000 of their own hard-earned cash into their studies... Sometimes I wonder what the phrase "UK citizen" in my passport really means - apart from a relationship of master to serf.... the best I can think of this document is that it allows me to go and visit nice people in other places....
[end my rant!]
But the FUD (Fear, Uncertainty, Doubt) that IR35 has, as you say, created in the contractor community (I agree that this was the intention - sometimes I do try to imagine that people in Government are misguided rather than skilfully and deliberately malicious, it does make life easier to bear - even if I usually have to conclude that, yet again, I was wrong..
) can be used by Orlando di Lasso in his situation, to stop this man from trying to force him to teach exclusively for him. Give that man the willies that doing this will risk the Revenue coming down on him!
I never thought I'd ever hear of a positive use of this law!
I agree with every single thing you say about IR35!!!!
Including what the Government require so much money for.... oh, let me see, bombs to drop on innocent people, disastrous IT systems (see ID cards for example... not that the fact that it'll be a bad system is the worst thing about it), bailing out the management of banks who screwed up our economy...
certainly not providing even minimal assistance to mature postgrad music students such as me, who put £11,000 of their own hard-earned cash into their studies... Sometimes I wonder what the phrase "UK citizen" in my passport really means - apart from a relationship of master to serf.... the best I can think of this document is that it allows me to go and visit nice people in other places....
[end my rant!]
But the FUD (Fear, Uncertainty, Doubt) that IR35 has, as you say, created in the contractor community (I agree that this was the intention - sometimes I do try to imagine that people in Government are misguided rather than skilfully and deliberately malicious, it does make life easier to bear - even if I usually have to conclude that, yet again, I was wrong..
) can be used by Orlando di Lasso in his situation, to stop this man from trying to force him to teach exclusively for him. Give that man the willies that doing this will risk the Revenue coming down on him!I never thought I'd ever hear of a positive use of this law!
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