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One Solution to the IC (Independent Contractor) vs. W2 (Employee) Dilemma

Posted By Jeyin Lee, Monday, July 18, 2016
Updated: Tuesday, August 30, 2016

(Originally Posted on March 02, 2015)

As the language industry continues to mature, we will see more legislation and regulation aimed directly at it.  It’s inevitable.  And that‘s a good thing.  It’s good for clients using our services, as they will get a better bang for their buck and its good for us as service companies, as it’ll help improve the quality of our offerings.

Some examples of how our industry is maturing:

  • The creation of the Association of Language Companies and GALA, associations that are focused on the needs of language companies.
  • The development of industry standards being addressed by ASTM International.

These issues were only a dream 15-20 years ago. There are many more examples demonstrating how the industry has matured in the last 20 years, but that’s not what this article is about. This article discusses misguided federal legislation that, if implemented, could put many language companies out of business.

One of the most contentious issues facing our industry today is the right to use Independent Contractors (IC) versus employees (W2).

The Contract Interpreter Information Center recently published a very informative article written by a labor attorney discussing the advantages of IC for our industry, which addresses the benefits of using an IC versus a W2. It also addresses the government’s crackdown on companies that employ this practice. There have been some cases where the federal government audited companies that use ICs. If the government feels that ICs are misclassified, they may require a company to pay fines in addition to back taxes for each IC that should have been categorized as a W2. Depending on the size of the tax liability, this could be a potentially devastating burden for language companies, many of whom base their business on the IC model. One thing the above article doesn’t address is how language companies satisfy requirements by the IRS.

Luckily the industry has energetic spokespersons such as Bill Graeper (along with a team of tireless participants) getting the word out to legislators to exempt the language industry from such audits. We all know the reasons why translators and interpreters are classified as ICs instead of W2s, so I will not spend time discussing it here. I will address instead the ways we can hopefully ensure that the proper requirements for IC status are met.

Translation and Interpreting Services

Although our industry supplies numerous services, they can be broken down into two primary categories: Translation services and Interpreting services. I feel that as an industry we are well protected with regards to using translators as independent contractors. The paper trail is much cleaner, and the project timelines are clearly defined. Translators also work from their own offices, and consequently they use their own equipment. We also do not train our translators on how to perform their job. They should already possess the proper credentials when accepting a project.  If a language company is audited, the use of translators as ICs is completely justifiable.

However, the defining line is not as clear with interpreters. Some generally accepted practices by interpreting firms are to find qualified, experienced interpreters to work as independent contractors.  This would be ideal if this were the case every time, but the reality is that in smaller metro areas where the language need is great and the talent pool is shallow, companies try to cultivate new interpreters in these markets. Naturally, some companies might develop a package of requirements for their new multilingual, yet inexperienced, candidates to meet and present these requirements in the form of a “test”. If the candidate passes the test, then they would be considered qualified to work as an interpreter. Unfortunately, this “test” could be construed as training, since the questions on this test could teach the applicant how to perform their job, and by federal standards, training is not allowed for ICs. If you train an individual, then that individual should be considered an employee, not an IC.

Contracts

Another practice which might fall into a gray area is the use of contracts. If these contracts include clauses such as confidentiality, non-competes, and interpreter protocol and etiquette, then they could potentially be misconstrued as training since you are telling your IC how to perform their duties.  And lastly, some companies have incorporated departments with the sole purpose of training ICs on how to properly perform as professional interpreters. I have been informed by two labor attorneys that if the interpreters used by your company are ICs they cannot be trained by your company.

So, what does this all mean? It means that the IRS may find your company to be non-compliant if you train your own ICs. Per the above-referenced article, you could be forced to recategorize your ICs to W2s and pay fines plus back taxes.  Not a pretty picture.

To add to our already burdened business, our clients are demanding that our interpreters have proper training in HIPAA and other such regulations.  Increased pressures on the client’s requirements increase our responsibility to ensure that we provide properly trained interpreters.

So how do we satisfy our clients’ needs, and also be considered compliant with federal legislation?  Ideally, we would not train our own interpreters at all, but instead have a third party provide the training.  However, it isn’t easy to simply go to your IC, and say: “Please take this course at this school, and then get back with me.  Otherwise, I cannot use you as an interpreter.”  The reality is that we need our interpreters to continue working for us.  And if they’re already working for us, what incentive would they have to pay tuition for a program in which they would consider elementary level knowledge?  Here is your solution:  Offer to finance the education.  According to two labor attorneys in Virginia and Pennsylvania, it is completely legal to pay for education for your IC, and then have the IC reimburse you (by way of invoice payment deductions) as long as there is an agreement in place stating these terms between the IC and company.

In other words, we as companies may pay for education at any institution we see fit.  The interpreter would take the course, all the while still working for us on assignments.  And every time we do a check run, there would be a deduction to their payment in order to cover tuition costs until the tuition is paid back in full.

Pros of this arrangement are:

  • Interpreters will be more inclined to take the course, as they don’t have to pay for it up front, and the only way they can pay for it is by working more appointments.
  • All interpreters will have a uniform standard of training.
  • Interpreters love padding their resumes.
  • We are hopefully more protected from potential tax liability regarding IC/W2 issues.
  • We can probably go to any interpreter training institution and negotiate a discounted tuition for our interpreters.

Cons of this arrangement are:

  • The initial outlay of cash may take some time to recover as an investment.
  • Many experienced interpreters that do not have any formal training will see training as remedial, and will be reluctant to comply with your request.

Only the interpreters that don’t have any formal training will need further education. It will take some time and effort to establish which of your contractors will need additional training.

In summation, we aren’t the only industry dealing with this issue. However, as members of this industry, it is important that we look out for one another and keep each other informed.

I hope this article has shed some light on the potential threat of IRS non-compliance and has also given you some ideas on how to solve the overlapping issues of elevating your independent contractors to the appropriate professional standards, while still remaining within IRS regulations.


Tags:  interpreting  translation 

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