Hiring Programmers

Leonard Gojer
Leonard Gojer used Ask the Experts™
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Creating a business with programmers who are "independent contractors" (not employees, per the IRS).

My task or inquiry is to find a way to have my little programming business and to see if it is legally possible to have programmers who are independent contractors, (not employees),
who perform their labor on my computer system that would be a VPS on the internet that is paid for by my company.

The reason that I am asking this question is because the laws say that a company that provides the capital resources of a project is by definition hiring employees not independent contractors, but then the use of an internet VPS raises the question if such an arrangement is legally correct to label the employees as "independent contractors" since it is in a "grey" area of the law that pertains to the software business.

Somebody please explain to me what my best plan of action with regards to this is. I am trying to produce the software at an economical price without short changing any substantial requirement of the law.
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JohnBusiness Consultant (Owner)
Most Valuable Expert 2012
Expert of the Year 2018

Commented:
In Canada and the US, if an employee only works for one employer, they normally must be classified as employees. If the contractor has multiple businesses they serve, then they can be Sole Proprietors or Incorporate.
Dr. KlahnPrincipal Software Engineer

Commented:
You need to consult a lawyer who specializes in employment and tax law.  The IRS penalties are severe if you get it wrong, not to mention the civil liabilities if the programmers decide that they are employees and sue for benefits.
Leonard GojerCAD Technician

Author

Commented:
Thanks for explaining that to me!!!!!

You can know that I am proceeding very slowly. I am reading various literature about the legalities of independent contractors. The business won't get under way until many months from now, anyways.
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Leonard GojerCAD Technician

Author

Commented:
The objective is to create a legal structure that operates at the lowest cost possible to produce the software at a price that it can be resold for a profit. I was thinking of how much of that is influenced by the technology, but you're suggesting to me that the technology cannot lower the cost as much as I thought it could.
JohnBusiness Consultant (Owner)
Most Valuable Expert 2012
Expert of the Year 2018

Commented:
You can have a business.

The tricky part may be a part time employee as you get started. If such employee has other work, they could be a contractor (as noted, check with your lawyer when you incorporate your business.

Cost of programming is part of your software cost and does not vary greatly on employment or contractor. Employee benefits would be a difference, but a contractor charges more per hour to pay their own Social Insurance and other benefits. So the difference between the two type is not huge.
Leonard GojerCAD Technician

Author

Commented:
If the employee benefits were just a fractional percentage of the cost of the employee, that would make this idea work correctly. Where can I read up on that?
JohnBusiness Consultant (Owner)
Most Valuable Expert 2012
Expert of the Year 2018

Commented:
You would need state and federal deduction tables.

Benefits normally run in the 15 - 20% range
Leonard GojerCAD Technician

Author

Commented:
I desire to close this question, now that you have answered it correctly, and award the points, but I don't see the buttons to do that.
JohnBusiness Consultant (Owner)
Most Valuable Expert 2012
Expert of the Year 2018

Commented:
Look down the left side where you marked posts as "Helpful"  Click on the button "My question was answered" and the follow the prompts.
Top Expert 2016

Commented:
a FTE is hired on an indefinite basis to do jobs as determined by the employer and are paid via a schedule at a defined rate of pay.

a contractor is hired on for a specific period or job. A contractor gets paid either at the end of the contract or paid once specific goals set in the contract have been met. There are defined objectives and start and end dates.
Lee W, MVPTechnology and Business Process Advisor
Most Valuable Expert 2013

Commented:
You're asking a bunch of tech people who don't know the laws in your state (which can be more strict than federal laws) a legal question.  In my opinion, this is foolish. Speak to an attorney who specializes in tech and employment law... IF you proceed thinking the information presented here is accurate and it isn't you've just wasted a HUGE amount of time planning on something that's wrong.  Further, even if it's right today, it could be wrong tomorrow.
Leonard GojerCAD Technician

Author

Commented:
Yes, not only do I need to speak to an attorney, but besides that, there is the issue that there is not enough money for either side of the choice to be performed, given the estimated size of the coding project. So, it would appear that I am going "back to the drawing board" with respect to the whole design of the project, and that it might not ever get done at all.
JohnBusiness Consultant (Owner)
Most Valuable Expert 2012
Expert of the Year 2018

Commented:
Our comments are worthwhile in order to gain an understanding when talking to a lawyer.  

Laws around employment and contracting do not change that fast.
If there is, as you say, "not enough money for either side of the choice" - consider looking into the "Support Only" model that many open source software companies are adopting. A team of open source developers may be willing to give of their time if they see benefit in the product, and more so if they understand there is profit to be made on the support side of things down the road.
Leonard GojerCAD Technician

Author

Commented:
What you just said sounds really interesting. So, you're saying that it depends on whether the team of open source programmers finds the idea worthy?
Should I write up some type of proposal to submit to such a website?
JohnBusiness Consultant (Owner)
Most Valuable Expert 2012
Expert of the Year 2018

Commented:
You would have provide a proposal of some sort to the agencies (not just to a website) to see how they might assist you.
Leonard GojerCAD Technician

Author

Commented:
But the question that is on my mind is: "how do the open source programmers in the United States get paid for the work that they did writing their coding?".
Leonard GojerCAD Technician

Author

Commented:
So, somebody at the top of the organization has to design the business model of the open source initiative in order for the company to collect the funds to pay the programmers.
JohnBusiness Consultant (Owner)
Most Valuable Expert 2012
Expert of the Year 2018

Commented:
That is useful. Remember making above average income at this kind of work requires good skill and experience
Leonard GojerCAD Technician

Author

Commented:
I desire to pass the Microsoft C# exam when I get a chance to sign up for it.
Leonard GojerCAD Technician

Author

Commented:
Another issue is that I have a disability, (Bipolar Disorder), and so I want to make sure that the work environment is not a bad place for me to be.
JohnBusiness Consultant (Owner)
Most Valuable Expert 2012
Expert of the Year 2018

Commented:
That is something you need to find a way to address with places where you might work.
Leonard GojerCAD Technician

Author

Commented:
Yes, I agree.  I don't want to mar the presentation of my resume when I go to interview with a big label that says "disability". I want the negotiation to have some privacy.
Leonard GojerCAD Technician

Author

Commented:
I see on the internet that the "Open Source Initiative" has only been around for 20 years. Whereas, I work in the construction industry, which is literally as "old as the hills".
JohnBusiness Consultant (Owner)
Most Valuable Expert 2012
Expert of the Year 2018

Commented:
Construction industry was alive and well (not necessarily the same way) when I was in University. There were not Personal Computers, Internet or Open Source back then.
Leonard GojerCAD Technician

Author

Commented:
I graduated in 2000, which is 18 years ago. My project was considered controversial when I graduated. I wonder if the issue is better now?
Leonard GojerCAD Technician

Author

Commented:
To deliver a controversial computer project, you need to be somebody important, like Google. Not as a small company.
JohnBusiness Consultant (Owner)
Most Valuable Expert 2012
Expert of the Year 2018

Commented:
Rather than be Google, you (and your programmers) need to be good and need to have a compelling product)
Leonard GojerCAD Technician

Author

Commented:
I agree with that also. I don't get to communicate too much with other programmers. In the place where I work, I am the one and only programmer and that creates a deteriorating situation.

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