Wielding One’s (Free) Lance
by Jo Gibson
Years ago, I was serving jury duty and an attorney asked during voir dire what I did for a living. “I free-lance,” I replied. The judge, brooking no euphemistic nonsense, boomed down from the bench: “You’re unemployed, isn’t that correct?”
The classic paradigm, wherein an employee toils for one company for 40 hours a week over the course of a working lifetime, has changed since then. Consider that in 1997, the Bureau of Labor Statistics (BLS) reported that one in ten workers were not traditional employees, but instead were classified into one of four “alternative work arrangements,” with 8.5 million designated “independent contractors.” More recent BLS data (published May 2001) shows no significant decline in those numbers.
With workers no longer moving lock-step, as full-time employees, from one career-enhancing promotion to another, adjunct faculty may have an advantage. While employed part-time at their colleges and universities, they are also natural-born free-lancers, also working, as they wish, as independent contractors:
“One of my colleagues and I had been conducting workshops for teachers, in addition to our teaching, and had established a network of relationships. We met with a lawyer, incorporated ourselves as ‘Professional Endeavors Network,’ and for two years that was how I bridged myself from one career to the next.”
Conrad’s phased out the workshop business and directs her energies towards her work as adjunct faculty in Education at various local colleges and universities and, in keeping with her entrepreneurial spirit, as President of C&H Capital Funding, a micro-business.
Retired professionals may get the best of both worlds. They value their adjunct faculty appointments, even as they use the skills and contacts they’ve made over the years to enhance their work as consultants.
Take James Watson, Ph.D., who retired in 1993 after 31 years in educational administration.
“School systems consider me their go-to consultant,” he notes, “the one who can help them to right the ship when they need it: I’ve served as Interim Superintendent and Interim Assistant Superintendent; I’ve been the Facilitator for many schools’ Continuous Improvement Programs; and I’m pleased at the success I’ve had fund-raising through Community Foundation Programs.”
Watson retains his independent contractor status as a consultant; as adjunct faculty, however, where he tweaks the business model as he teaches Strategic Planning to educators, he retains employee status.
“In the private sector,” Watson says, “my academic credential as a faculty member gives me credibility and depth.”
Given the freedom and remuneration many enjoy in free-lance life, the central question the wise adjunct should ask is: “What prevents me from eschewing employee status and working for the schools as an independent contractor?” By way of answer, there are three magic words: Internal Revenue Service (IRS). The IRS categorizes workers simply, in an “either/or” fashion. You’re either an employee, or, if not, you’re an independent contractor. Employees are easily classified, for management supervises your work, withholds your income tax, and furnishes you with a W-2. Independent contractors are not so easily classified; the IRS therefore uses a 20-factor test to assist in evaluating whether a person qualifies as an independent contractor (see “Summary of IRS 20-Factor Test” at http://www.hrnext. com/tools/view.cfm?articles_id=1470 &tools_id=2).
Let’s examine this. Because IRS and U.S. tax law require that employers meet a number of obligations, beyond withholding taxes ( e.g., that they also withhold FICA [Federal Unemployment Tax Act / social security] and pay half the employee’s FICA; pay Federal Unemployment Tax Act [FUTA]; offer fringe benefits like vacation time; meet minimum wage requirements; abide by stipulations regarding overtime, antidiscrimination, medical leave, right to organize), you might think companies would be eager to hire independent contractors to reduce the cost of salaries, benefits, employment taxes and the like. To a degree this is true, as the growing number of independent contractors nationwide proves. However, there’s a downside, as Attorney Stan Davis, an employment law expert with the Kansas City offices of the global law firm Shook, Hardy & Bacon points out: “There’s a huge risk and serious liabilities if an organization misclassifies employees as independent contractors. An institution could make itself liable for back taxes and penalties. Why would a college or university risk it? Sure, there would seem, on the face of it, real benefits to the school in saving the administrative hassles of taxes and so on. You just give your independent contractors a 1099 and don’t worry about withholding taxes.” Davis concludes, “I’d advise any school that was my client to be careful, and make sure that anyone they hire as an independent contractor meets the IRS 20-factor test. An individual doesn’t just label him or herself an independent contractor, and make it so.”
Now comes the conundrum: Is the reverse true? Does a college or university make you an employee just by labeling you as such? What if an adjunct faculty member takes care to function as an independent contractor–e.g., you have assets (office space with desk, computer, fax machine, dedicated phone line, business cards) and are prepared to pay all your own taxes? Using the IRS 20-factor checklist, you might consider yourself in a position to push for independent contractor classification at your college or university. After all, you meet many of the requirements. You might even have made a point of working for different colleges and universities, moving from one to another, so that you would not be found to be regularly working for the same employer. However, it’s not a question of running down the checklist, marking yes and no, and totaling for an answer. The central issue is in shades of gray: it’s about the control of the work and the nature of the relationship. As Attorney Charles Muhl notes, in his exploration of the topic, what really matters is “the totality of the circumstances surrounding a worker’s employment.” So the answer to the all-important question of whether adjunct faculty are employees or independent contractors? Muhl nails it: “The answer depends.” [See the full text of Muhl’s “What Is an Employee?” in the January 2002 Monthly Labor Review. For more on the 20-factor test, see Publication 15-A and Form SS-8 (search publications and forms at http://www.irs.org) and for a look at the independent contractor/employee classification from the standpoint of the consultant, see http://www. ieeeconsultants.com and also search the archives at http://www.eponline.com for “Free Agents in the Workplace–Part II.”]
Clearly, there are good reasons why colleges and universities prefer their adjunct faculty be hired in the straightforward employer/employee relationship. Most significantly, it reduces their chances of disastrous problems with the IRS. Further, as author, teacher, and Chronicle of Higher Education columnist Jill Carroll remarks, once institutions of higher education hire adjuncts as independent contractors, “They’d have to loosen their grip of control, both in terms of dictating job descriptions and, more importantly, what they pay them, instead of letting the market manage it.” In all likelihood, like Carroll, Conrad, Harris, Watson, and adjunct faculty around the country, you’ll “wield your free lance,” so to speak, where and how it makes sense–-and gather up your W-2’s from the universities where you teach as an adjunct and your 1099’s from the places where you work as an independent contractor. But given the tax benefits the self-employed realize through business-related deductions, more adjunct faculty should investigate their options and, perhaps, choose to negotiate for independent contractor status with their universities.
Either way—whether you work as an independent contractor or as a hybrid (adjunct faculty cum independent contractor)—you need equal parts financial/legal and business savvy. For starters:
1. Consult Attorney Stephen Fishman’s Working for Yourself: Law and Taxes for Independent Contractors, Free-lancers, and Consultants (4th edition, 2002). (Available from NOLO, Berkeley, California, or on-line at http://www.nolo. com)
As an independent contractor, you must make important decisions regarding your business (is it a corporation, or sole proprietorship, etc.?), and since no taxes are withheld, must understand your financial responsibilities (deductions, estimated tax payments, etc.). Fishman’s book is a fine resource. It covers everything from drafting agreements with clients to researching tax laws on your own. In a recent interview, Fishman acknowledged that adjunct faculty face special constraints: “Adjuncts have a tough life in a lot of ways, and since it’s customary that they be hired as employees, it would be an uphill battle to convince the college to change the designation. Colleges don’t want go against the customary standard.”
2. Give thought to joining the National Association for the Self-Employed (NASE) http://www.nase.org
Independent contractors face real concerns, the biggest being (according to an informal survey by Daniel Pink reported in Free Agent Nation: How Independent Workers Are Transforming the Way We Live) (1) the lack of health insurance and benefits, (2) cash flow problems, and (3) the need to market one’s talents. Faced with these and other issues–unique to yourself, perhaps–you can turn to NASE. They offer general resources (insurance options and tips regarding home office supplies) as well as access to a NASE professional consultant via an 800-number.
NASE’s Lead Consultant, Gene Fairbrother, a prominent Dallas, Texas, corporate executive who specializes in micro-business consulting, gives this advice: “It’s imperative to recognize that in the business arena, bad communication causes 80 percent of the problems. As an independent contractor, start by drawing up a contract with your client. It may not be legally binding, but you need that contract. It stipulates the parameters and gives you and your client an agreed-upon understanding of what services you will provide, by what date, and for what fee.” Fairbrother emphasizes that there are obligations and costs associated with being an independent contractor.
“Sad to say,” Fairbrother notes, “many folks lose sight of that important fact: you may be just an individual, but you are a business. Sure, you’re a dreamer and an idealist! You don’t want to lose that quality. But as an independent consultant, you have obligations and costs regarding liability and insurance, for instance, and you need ‘hard skills’ to deal with them.”
Says attorney-author Stephen Fishman: “If you do it right and pay attention to the relevant tax regulations, you can certainly increase your bank account by working as an independent contractor, since many self-employed often pay less taxes than employees with similar incomes. Who knows? Some day you might be able to gain the cooperation of a college and work for them as an independent consultant.”
