As a wedding planner, it’s likely you’ve hired an associate (or a few) to assist you on the weekends. It’s not unusual for associates to be classified as contractors. This casual working relationship is the most appealing as you don’t have to pay taxes on their behalf, and you don’t feel the financial strain of a more permanent relationship.

Many small business owners decide to classify a worker as a contractor for their convenience. However, the reality is that this isn’t a choice you can make to suit your needs. The IRS defines what a contractor is and isn’t. They want to see control and independence in how a contractor works with its client. (YES, you are the client. Your contractor provides a service to your business.) You can read the IRS specific on control and independence here.

The Risk of Misclassifying Your Associate as a Contractor

So, what’s the big deal? You risk a lot by misclassifying your workers. By misclassifying your wedding planner associate as a contractor, you could be facing years in back-taxes and associated penalties. Not to mention, the audit and investigation that leads up to all this.

Before you hire anyone as a contractor or employee, read this blog post about whether hiring an associate wedding planner is a smart financial move.

Unfortunately, there are few hard and fast rules on this from the IRS. (We shouldn’t be surprised that this is a gray area with IRS, right?) They will want to look at the overall behavioral characteristics, financial nature, and the type of relationship between the company and its contractors. Just keep in mind: If it walks like a duck and talks like a duck, it’s a duck.

Big red flags that the IRS looks for:

1) You have a training procedure for your contractors.

By nature, a contractor is an expert in a particular specialty. For example, the web designer you hire to design your website; they are a contractor to you. Therefore, your contractors should require little to no training.

You may bring a contractor up to speed on how specific systems work in your business. However, you will NOT be training a contractor on how to run a wedding. They will already know how to do this and should be able to jump in pretty quickly.

2) You have a non-compete agreement with your contractors.

Your contractors are self-employed individuals. As experts in a specialty, they should be selling that particular service (wedding planning assistance) to MANY different clients. This means that your associate should be working for other wedding planners, and may even have their own wedding planning business.

You can certainly have your contractors sign an NDA (non-disclosure agreement) to protect your internal ideas and procedures, but you cannot forbid them from servicing others. Learn more here about protecting your business before hiring staff.

If you try to stop a contracted wedding assistant from working for others or providing wedding planning services on their own, then you are running against the grain of the IRS’s contractor definition.

3) You provide an employee manual, company benefits, or require them to fill out a timesheet.

A contractor works for themselves, not you. Therefore, any of the ‘company procedures’ that you might be sharing with an employee would not be something that a contractor is required to follow. Also, you should not be handing over any employee handbooks or timesheets for them to follow or use.

If you want a contractor to emulate your company’s service promise to your clients (anything from dress code to customer service cues), you can make suggestions as to how your company operates. You may even have a ‘contractor guidance sheet.’ However, there should be no blurring of the language used for employees and contractors. Don’t treat your contractors the way you would an employee.

You may want to read how to make your wedding planning assistants more helpful.

Keep your distance in contractor relationships.

A great litmus test that I like to use is to ask myself this question: “What is my relationship like with my graphic designer or web designer?” All of your contractors should have a similar arm’s distance relationship with your business.

You are guiding your web designer in the job you’ve hired them to do for your business. But, you aren’t telling them how to do their work, they come to the job with an expertise that you don’t train them on, and they manage several client projects in addition to working with you. So your wedding planner associates (contractors) should look precisely the same.

As I said, the IRS is pretty vague on the specifics. You won’t find a list of 100 do’s and dont’s on their website. But if you follow the general idea that a contractor needs to run independently from your business, you’ll be on the right track.

This is a guest post by Michelle Loretta. Michelle is a business consultant and financial strategist for wedding and event professionals. As founder of Sage Wedding Pros she blends her past as an accountant for Deloitte, a sales and marketing manager for DDLA, a merchandiser for Coach, and a stationery entrepreneur to strengthen wedding businesses worldwide. Sage Wedding Pros is the creator of the hiring toolbox, The People Plan. Michelle has been asked to speak at a number of industry conferences, including NACE Experience, Biz Bash Live, and The Special Event.

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