Grant Writers - Employee or Independent Professional?

With the deadline to file 1099 forms approaching on January 31, 2014, this is a question I get often.

I get literally hundreds of inquiries each year from organizations that want to "hire" a grant writer. Most of them don't seem to know the difference between an employee and an independent contractor. I have also gotten some inquiries from the Internal Revenue Service asking me to produce a contract or other proof that I am in fact, an independent contractor . In spite of that, I have had many clients get extremely upset when I ask them to sign a contract that establishes that independent relationship.

   

The IRS has some fairly clear guidelines on what constitutes an employee. In short, if you control the time, place, method  and execution of work, you have an employee. If you are paying for a specific  result, you have an independent contractor. Thousands of tax returns are audited and fines and penalties paid every year by businesses that incorrectly classified a worker as an independent contractor.

Employee status means that the employer pays all the legally required taxes, and the person may be eligible for any benefits that you offer other employees of similar status. You may be liable for overtime payment. It doesn't matter whether the person  works in your office or at home or the corner bar, if you control the manner by which they create that product, they are employees.

Why does this matter?  Because I consistently get inquiries or see ads like this:

"Grant writer wanted, independent contractor. Employer requires…" (italics are mine) etc. etc.

OK, that's great. As an employer you can require just about anything that isn't illegal or immoral. But you can't classify this person as an independent contractor to avoid the tax obligations of an employer.

There is a difference between "hiring" and "contracting with". Do you "hire" your doctor or your accounting firm? No. You can hire an in-house accountant, but you contract with an accounting firm.

Independent contractors are self-employed. They pay all the applicable taxes, insurances, rent, internet fees, equipment costs and all the other costs that you do in your organization. They have clients, not employers. That's why the term is independent contractor, not independent employee.

If you want to hire an employee to write grants, go for it. You will furnish their working space, equipment, phones, paper, ink, bathroom supplies, and all the other things that go with having an employee. You can tell them when to work, how to work, and where to work. As the employer, you also  have to pay the taxes.

When you hire an independent contractor you do lose some control over the when, where and how parts of the equation. You are paying for a specified result. You are gaining a release from the responsibilities of an employer, as well as the certainty that you have no further employer-related obligations like providing health insurance or unemployment insurance. You may also gain the ability to free up your employees to do things that are of more immediate benefit to your organization.

Learning the difference between defining an expected result and controlling a physical body can save you (and your grant writer) countless hours of conflict and frustration.

What type of ad or RFP indicates that you understand the difference?  I look for a query or RFP that starts out with (Name or type of organization)  is looking for an independent contractor to (provide grant leads, write grants, seek funding, expand funding base) … or whatever result you are seeking.

The specific contract language can also indicate that there may be a conflict in perception. When a prospective client requires the independent contractor  to use a time tracking program, work specific hours of the day, agree not to have other clients, report to their office to do the work, or take on tasks not defined in a contract without adjusting the contract terms, they have crossed the line between employer and client. If I agree to those restrictions, I expect to be made a bona-fide employee, and you can bet the IRS will also see that as an employer-employee relationship.

Using an independent contractor doesn't mean that you have no control over the finished product, or that there is no communication. On the contrary, you will probably have more interaction with an independent contractor than you might have with an employee. 

Establishing a client/contractor relationship requires both parties to respect the other as professional and separate entities. The IRS has made many attempts to communicate this to business owners. To see their take on the issue you can visit that page at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Defined.