Definition of Independent Contractor

[spflanze]

What is the name of your state? California

The Question:
There are rules about what defines whether a worker is an independent contractor, or employee. One of them is that a contractor must use his, or her, own tools. How does this rule apply to an engineer developing software at a client’s site on client owned computers? As I see it there are two ways it can be considered:

1) Any computer the engineer works on is that engineer’s work tool and so must be owned by that engineer, who must bring that computer on site, if he, or she, is to continue to be defined as an independent contractor.

2) If a construction contractor is to build, and develop, on a client’s real estate the contractor has to access that land. Similarly If an engineer is to build applications for use by the client, the engineer must have access to a client’s computer that operates client owned equipment, so applications in development can be tested, and debugged, as they are developed. Disk space the application is built on can be considered the equivalent of client owned real estate a construction contractor builds on.

The Situation:
I am an independently incorporated contract engineer.

I have been working on site at a client who has provided for me an office, and a computer, to develop software on, to communicate with vendor tech support, and to post questions on technical forums. When initial coding is completed, I have been transferring the development to a lab computer for testing, and debugging. To do this transfer I use the client’s network to synchronize with the client’s server. Then I synchronize the lab computer with the server. This way there is a backup of the work on the client’s server.

There has been a recent change in the client company’s ownership. The new owner has a problem with me using his company’s computers, and having access to the server. So that owner wants me to bring in my own computer to do the work. That includes bringing in two large monitors I need to work efficiently.

The client owned lab computer has very expensive data acquisition equipment that is cost prohibitive for me acquire for a computer of my own I would bring to the client’s site. Also the Integrated Develop Environment the software is built with requires a very expensive license that is also cost prohibitive for me to acquire for this job.
I have worked for several other clients as a contractor where use of their computers to develop software, and design electronic hardware, has never been an issue.

 

[cbg]

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

 

[adjusterjack]

There are rules about what defines whether a worker is an independent contractor, or employee. One of them is that a contractor must use his, or her, own tools. How does this rule apply to an engineer developing software at a client’s site on client owned computers?

There are many criteria that determine IC vs employee. Tools are the least of them. Example: auto mechanics who work for repair shops bring their own tools, yet they are employees.

I think you can be an independent contractor regardless of whose computers you use.

The key factors are:

Are you self employed? I think yes. You note that you are incorporated.

Do you hire out to clients to perform these services on a fee basis and bill by invoice (whether hours of job price)? I think yes since you mentioned that you do this work for other clients.

I think those two factors alone would make you an independent contractor and not an employee.

There has been a recent change in the client company’s ownership. The new owner has a problem with me using his company’s computers, and having access to the server. So that owner wants me to bring in my own computer to do the work. That includes bringing in two large monitors I need to work efficiently.

That issue has nothing to do with being an IC.

Do you have a written contract detailing the use of the company's equipment. That would be easy to enforce against the new owner who wants to unilaterally breach the contract.

In the absence of a written contract you would have to show evidence of an oral contract with the former owner. Performance is an important element of an oral contract. That you have been performing your services on the company's equipment till now may be evidence of that oral contract.

I suggest reminding the new owner that a contract exists, that you cannot use your own equipment, and ask if he's willing to let you out of the contract, pay you to date, and let you be on your way.

 

[LdiJ]

There are many criteria that determine IC vs employee. Tools are the least of them. Example: auto mechanics who work for repair shops bring their own tools, yet they are employees.

I think you can be an independent contractor regardless of whose computers you use.

The key factors are:

Are you self employed? I think yes. You note that you are incorporated.

Do you hire out to clients to perform these services on a fee basis and bill by invoice (whether hours of job price)? I think yes since you mentioned that you do this work for other clients.

I think those two factors alone would make you an independent contractor and not an employee.



That issue has nothing to do with being an IC.

Do you have a written contract detailing the use of the company's equipment. That would be easy to enforce against the new owner who wants to unilaterally breach the contract.

In the absence of a written contract you would have to show evidence of an oral contract with the former owner. Performance is an important element of an oral contract. That you have been performing your services on the company's equipment till now may be evidence of that oral contract.

I suggest reminding the new owner that a contract exists, that you cannot use your own equipment, and ask if he's willing to let you out of the contract, pay you to date, and let you be on your way.

I agree to a great extent with this advice, but differ a bit.

I would explain to the new owner the following:

The client owned lab computer has very expensive data acquisition equipment that is cost prohibitive for me acquire for a computer of my own I would bring to the client’s site. Also the Integrated Develop Environment the software is built with requires a very expensive license that is also cost prohibitive for me to acquire for this job.

Then explain that if you cannot use the company equipment that it would be a breach of your contract and that he would have to pay you to date and then part ways. I would also explain to him that any other contractor he might hire for the job would have the same problem therefore it will be important that he disclose that up front with any contractor that he might try to hire to finish the work.

Then tell him that you would be happy to continue to finish the project but only under the original conditions or if he accepts an increase in price to cover the equipment and software that you would need to buy in order to use your own equipment.

 

[spflanze]

There is a contract. There are no terms in it regarding whose equipment is to be used.

I give the client invoices for my labor. The invoices bill by the job. Hours are not on them.

It is a corporate to corporate transaction. The client pays my corporation, and not directly me.

I do consider myself to be self employed. My concern is the legal criteria that maintains that status.

 

[cbg]

There is no one single factor that defines whether you are an IC or an employee. A change in whose equipment you use is not going to change your status. If anything, using your own equipment instead of the clients' would enhance your IC status. I'm not quite sure what the problem is.

 

[LdiJ]

There is no one single factor that defines whether you are an IC or an employee. A change in whose equipment you use is not going to change your status. If anything, using your own equipment instead of the clients' would enhance your IC status. I'm not quite sure what the problem is.

The problem is that the client is concerned enough about IC status (not wanting the OP to be considered an employee) that the client wants the OP to use their own equipment. The OP has indicated that it would not be cost effective to use his own equipment, which is a distinct change in the cost parameters of the job.

 

[cbg]

I understand that. I do not understand why the OP thinks that it would affect his status as an IC.

I could understand the issue if he was talking about a breech in contract. But not why he'd think it would change his IC status.

 

[adjusterjack]

I think OP muddied the waters by addressing IC. There was actually nothing in his post suggesting that IC status was even an issue with the client.

There has been a recent change in the client company’s ownership. The new owner has a problem with me using his company’s computers, and having access to the server. So that owner wants me to bring in my own computer to do the work. That includes bringing in two large monitors I need to work efficiently.

This is a contract issue.

 

[cbg]

I think OP muddied the waters by addressing IC. There was actually nothing in his post suggesting that IC status was even an issue with the client.



This is a contract issue.

Exactly. It's got nothing at all to do with IC status.

 

[LdiJ]

Exactly. It's got nothing at all to do with IC status.

I am reading between the lines a bit, but I believe that the reason why the new owner is pressing the issue now is because the new owner is afraid that the OP would be considered to be misclassified as an IC because he uses their equipment. I believe that the new owner has indicated that to the OP.

Maybe the OP will come back and clarify that for us.

 

[adjusterjack]

As long as we are guessing, my guess is that the new owner sees an outsider with access to the company systems and is concerned about cyber security.

 

[spflanze]

The new owner is concerned that if I use a his company's computer to do work, then I am an employee of his company, and not an IC.

It is not a cybersecurity issue.

There is a contract, but it makes no mention of the use of his company's (the client's) computer, electronic rework tools, etc.

 

[adjusterjack]

The new owner is concerned that if I use a his company's computer to do work, then I am an employee of his company, and not an IC.

Thanks for clearing that up. You might show him this conversation and the comments about IC. If that doesn't convince him that you are not an employee then it might be worth having a lawyer write him a letter explaining same.

There is a contract, but it makes no mention of the use of his company's (the client's) computer, electronic rework tools, etc.

Courts will first look at the words within the 4 corners of the page. If a dispute is about something outside those 4 corners the court will then look to the intent of the parties. Seems like you have an oral or constructive agreement to use the company equipment because you have been using the company equipment with the consent (express or implied) of the former owner. This agreement should be binding on the new owner.

 

[spflanze]

Thanks everyone for your replies. Your responses have convinced me of my IC status.

I am concerned that more will be needed to convince the CEO of my client corporation. So I would appreciate references to legal resources that back up your opinions on this matter.