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Seeking the substance: worker classification and Greek philosophy

In the Athens of the 4th century BC, issues about the taxation of independent contractors would have been inconceivable. In that society, after all, workers were either slave or free; that distinction, not contractor versus employee status, was the key one in a slave-holding society.

It was in the Athens of that time, however, that key concepts and categories arose that still influence thinking about all sorts of issues today. One of those concepts is the distinction between "substance" and "accident."

In this post, we will apply that distinction to the ongoing debate about worker classification for tax purposes.

It’s been about a month since we last wrote about the issue of worker classification. In our October 18 post, we noted the job shift toward more independent contractors. This shift, as we noted, is driven by many other factors besides the financial incentive companies have to avoid paying more employment taxes than they really have to.

Of course, the IRS has its own financial incentives. Because Congress has not modernized the tax code to reflect the shift toward more use of contractors, the IRS keeps trying to catch employers who are supposedly misclassifying employees as independent contractors.

But the rules about how to distinguish employees from contractors are difficult to understand. Traditionally, under the common law, there was a multi-factor balancing test involved in making the distinction. Building on that tradition, the IRS has no fewer than 20 factors that can be used in assessing a worker’s classification status.

To make sense of those factors, the distinction between “substance” and “accident” articulated so well by Aristotle in ancient Athens can be helpful. After all, when all of the factors have been analyzed, much comes down to the substance of the relationship between the worker and the employer.

Individual facts, such as whether a worker is on or off of a work site, are not determinative on their own. In today’s economy, a full-time employee could work offsite while a contractor works onsite. These facts are important, but are “accidental” in terms of describing the substance or essence of the relationship.

Source: Forbes, "'Independent' Contractors--And Many That Aren't--Shape Work Today," Robert W. Wood, Nov. 11, 2013

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