Letters to Contractors :
Contractors have become an increasingly popular way for organizations to get work done because the costs are defined, risk of litigation less, and ongoing claims rare. In a similar way, you can be more direct with contractors than with employees, with the caveat that a contractor who is not working for you as part of a corporation can challenge termination and as if you were their employer not a contractor.
The best way to reduce and virtually eliminate this risk is to have the individual sign a version of the letter below as well as the attached letter with reference to reading the IRS 20 Rules used for determining contractor status, and initialing that document too.
Dear Mr. Jones,
Our organization plans to contract with you at $20 per hour or $2000 per month (editor... either is fine under the 20 IRS Rules) to do specified work for us.
Please sign the acknowledgment that you agree to work as a contractor not an employee for our organization. You further agree to report your income in this manner as a 1099 Contractor on Schedule C of your Federal and State Income Tax forms.
Please also read and sign the attached IRS Rules used for determining contractor status. If at any time you believe our organization is asking you to do work not covered in these 20 rules, and therefore making you applicable to having employee status, please do not do what is requested and notify us immediately that you believe we have asked you to do work inappropriate for a contractor.
You agree you will not challenge your status as a contractor now or after your contact work ceases. This means that if you believe you are being unfairly treated as a contractor, and more like an employee, you will bring that to our attentionand not do the request at all.
Yours very truly,
John J. Jones
Acknowledgment by Contractor :
Two Witnesses :
Attached 20 rules.
If you currently have contractors working for you that are not paid in corporate names, get them to sign these agreements. If they will not, and this has happened to me, you risk challenge later when their work is terminated. It is better to get agreement than not. It is better to know they won't agree than not, so you can prepare your case against them prior to their work being terminated.
General correspondence with contractors should be crisp, clean, and specific. Use the models in the Request section. Because, in fact, you are making requests of them. The key to working effectively with contractors is to have clear deliverables and make as few soft requests as possible.
Generally agreements with them will favor them not you. So I avoid them if I can. If they present you with those kinds of agreements to sign, think hard before doing so. Many contractors make their real money by prosecuting their contracts, not a pleasant thought for their customers. It also indicates skepticism of their customers, and therefore you, that already gets you off on poor footing.
The absence of a writing agreement generally favors you as the payer.
Here is an example of a contractor letter.
Dear Mr. Jones,
Simply Magazine would like to contract with you to do the complete art work necessary to produce and deliver a finished jacket design for our new CD, Business Letters, Fax Memos and Emails.
Simply Magazine will provide the copy which we want you to edit and adjust to the jacket requirements, choose the artwork, and engage in a process of approval with us.
Upon completion satisfactory to us we will pay you $2850. Your work must be completed within 30 days or we will be unable to accept it or pay you for it.
Thank you very much.
You can see how aggressive, hostile, and suspicious this letter sounds. We think it is usually better not to send this kind of letter because, if incomplete it does little good and if complete it is off-putting. Better on small projects to simply reach a verbal agreement or have them furnish a list of what they will do (then the burden is on them).
In my experience, letters in this area have little potential for good and much risk for harm, as long as the matters being done are small. If disputed, the casual oral agreement tends to be treated far less seriously by the contractor's lawyer (the best way to keep the matter out of court is to discourage this person) and by Judges if it reaches that level. Judges tend to believe that if it wasnt in writing, then it couldn't be tooimportant to the parties. There are exceptions to this, of course; but as a rule, it is a good one.
Finally, large companies love documents but they often come back to bite them. Documents imply a relationship, exactly what gets people in trouble when trying to get out of a situation. Our rule is you want a document if the other party is larger than you;you don't want one if they are smaller.
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