Small Change

Getting Tough

Even with all the IRS' recent efforts to clarify the controversial issue of independent contractors (including the amnesty program we mentioned in the January "Tax Talk" column), some courts are getting tougher in their rulings. For example, a recent decision by the U.S. Court of Appeals for the Ninth Circuit reversed a lower court's ruling and found that hundreds of independent contractors working for Microsoft Corp. were regular employees and thus eligible to participate in the company's 401(k) and stock purchase plans.

In light of this trend, more companies are shying away from independent contractors and instead are using employment agencies or professional employer organizations. By going this route, a company can sidestep the tax and legal problems associated with independent contractors because these agencies put workers on their own payrolls, pay the appropriate taxes, and do all the paperwork.

If you are concerned about the independent contractor issue, you may want to look more closely at employment agencies or employee leasing options to avoid potential tax snags.

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This article was originally published in the March 1997 print edition of Entrepreneur with the headline: Small Change.

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