Audit Proof your Independent Contractor Expenses

I just read a great post on an even better blog entitled the New York Small Business Law Blog. The blog post – Tips on Making your Independent Contractors Audit Proof – notes that the feds are increasing their efforts to crack down on misclassified independent contractors.

The advice the attorney gave on how to avoid the scrutiny of the government would have also been useful for a client of ours who ran into an issue with the Korean National Tax Service and the Ministry of Labor a few years back.

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The client, who was working with a large ubiquitous Korean law firm, lost a costly battle with the Korean Ministry of Labor and Korean National Tax Service because of a naively drafted contractor agreement.  The blog post reawakened my memory of this incident. 

The practical advice noted in the New York Small Business Law Blog can also be useful for your independent contractor needs in Korea.

“”•Pay your independent contractors per assignment or per project, not by the hour, and don’t pay them a fixed weekly or monthly salary;

•Keep them away from your “real” employees and don’t dress and equip them like employees, i.e. don’t give them company business cards, don’t let them use your company letterhead, don’t let them perform the exact same tasks that your employees perform.

•Keep the independent contractors on a long leash (give them their “independency”). They should be able to control when they can work and how they work; Avoid micro-managing their work.

•Don’t forbid them from working for other employers on similar projects. But you could require them to at least inform you when they do, to give you the option to limit their engagement at that time.

•Put all of the above into an independent contractor agreement, a.k.a. consultant agreement. “”

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