The Employment Relationship versus Independent Contracting: On the Organizational Choice and Incentives

This paper studies a firm's choice between employing a worker and using an independent contractor to carry out a task. If the firm hires a worker, all residual rights reside with the firm. In contrast, when the firm deals with an independent contractor, it cannot interfere with the way the task is undertaken. The firm's future actions may impose non-pecuniary costs to the worker, and as a result the worker requires an ex-ante compensation. The firm can economize on the up-front cost by hiring an independent contractor. Independent contracting is a commitment device which ensures that the principal will not intervene in the future. However, when the firm has superior private information that is relevant to the execution of the task, the firm faces a trade-off between paying lower costs by hiring an independent contractor and keeping the option of value-enhancing intervention in employment relationship.

A Third Class of Worker: The Dependent Contractor

The following research paper is intended to address the worker classification issue that has intensified due to the rise of the gig economy. After reviewing the current literature on the subject, it will be made clear that a change must be made to the binary classification system that is used in the United States, and to the methods used to categorize workers within the system. This paper proposes the addition of a ‘dependent contractor’ category, which would be a subcategory of employee, and would fall between independent contractor and employee in terms of what benefits they would be entitled to. In addition, a modified version of The Fair Labor Standards Act (FLSA) test would be the only test used to classify workers. This would effectively limit the confusion that presently exists due to the use of multiple classification tests. Prior to any of these systematic changes being made, it is also proposed that a ‘safe harbor’ period be implemented to allow organizations the opportunity to prepare for any burden that they may face due to the changes that are eventually made, and for some dependent contractor benefits to naturally emerge

The Affordable Care Act raises the stakes on worker classification; what does this mean for the Voluntary Classification Settlement Program

This research considers worker classification and the many implications an employer must consider when classifying a worker as employee or independent contractor. One implication relates to healthcare benefits and healthcare taxes. As such, this research will evaluate the new healthcare taxes and implications resulting from the Affordable Care Act. Furthermore, this research will relate and explain worker classification with regards to the Voluntary Classification Settlement Program. This is a program offered by the Internal Revenue Service allowing employers to prospectively classify workers as employees with tax relief for past misclassification. The healthcare implications from the Affordable Care Act have raised the stakes on worker classification. This research will confirm whether this will provide greater incentive for employers to classify workers as employees or independent contractors. This research considers worker classification and the many implications an employer must consider when classifying a worker as employee or independent contractor. One implication relates to healthcare benefits and healthcare taxes. As such, this research will evaluate the new healthcare taxes and implications resulting from the Affordable Care Act. Furthermore, this research will relate and explain worker classification with regards to the Voluntary Classification Settlement Program. This is a program offered by the Internal Revenue Service allowing employers to prospectively classify workers as employees with tax relief for past misclassification. The healthcare implications from the Affordable Care Act have raised the stakes on worker classification. This research will confirm whether this will provide greater incentive for employers to classify workers as employees or independent contractors

Independent contractor vs. employee : exploring the categories (1994)

"New August 1994.

Section 335 Active Business Management: What Advice to Give Clients Today

The IRS in three Rulings has taken the position that services for the distributing corporation performed through independent contractor could not satisfy the active business requirement test of Section 355. Mr. Lee analyzes the Rulings in light of case law and legislative history that have interpreted the Code\u27s active business test. He concludes that further court tests will be necessary before there can be complete reliance upon active conduct by an independent contractor

Should we base procurement rules on the competition of linear incentive contracts ?

The study of optimal procurement contracts under informational asymmetries generally assumes that the cost disturbance affecting contractor's cost function is not observed by the principal. We assume here that this variable (which may represent environmental or geology conditions...) can be observed in the process of the contract. Thus, the principal is now able to make the payment contingent on the realization of this variable. In this context, the aim of this paper is to compare a linear incentive contract with a "modified" fixed-price contract, which allows the payment to the selected contractor to be independent upon his bid in the case of a high-cost value of exogenous uncertainty.procurement bidding; linear incentive contracts; fixed-price contract