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Change employee to Independent Contractor

dwittdwitt 26 Posts
in HR & Employment Law Vote Up0Vote Down
We have a Salesman employed with our Company 21 years. The last couple of years my President and VP have been trying to find ways to terminate him. This salesman is 67 years old and states he wants to work forever. I am very much aware of the reasons they want to let him go: age, health insurance, disability benefits, 401k match, 5 weeks vac, etc.

What they are proposing to do is to term him from the payroll, but retain him as an Independent Contractor. They're willing to up his commission and include a figure to cover a supplemental policy with Medicare.

Does anyone see anything wrong with this? I am not very comfortable about the situation...
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  • 5 Comments sorted by Votes Date Added
  • NaeNae55NaeNae55 3,243 Posts
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    An employee who earns straight commission is still an employee. As long as you have any control over his day to day activities, you will be his employer no matter what you call it. Without a legitimate business reason (and it doesn't sound very legitimate to me so far), this is age discrimination. Trying to term someone because they are having an adverse affect on your insurance will get you into trouble too.

    By the way, how large is your company? If I remember correctly, Medicare is primary on companies smaller than 20 employees. If you are larger than that, and his claims are really having an effect on your rates then you really need to be extra careful about how you handle this.

    As long as this employee is pulling his weight the same as other sales staff, he is your employee. Your only other option, as far as I can tell, is to completely reorganize your sales staff so that they ALL are independent contractors. This will involve a lot of change and loss of control by your management staff. I strongly recommend a conversation with your lawyer before anyone proceeds.

    Good luck!

    Nae


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  • DasherDasher 463 Posts
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    As the HR professional, you need to strongly stress that this proposal has serious consequences for the company which puts it at risk for an age discrimination suit that would make the cost of benefits pale in comparison to the possible monetary damage awards/rewards to this employee.

    You all need to consider other options to ameliorate this situation -- they are out there and this one is NOT it.
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  • stilldazedstilldazed 640 Posts
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    There is a lot wrong with it. Aside from blatant age discrimination, proving he's truly an independent contractor may be difficult if he's not working elsewhere in the same line of work, producing invoices for payment rather than receiving a commission, has not had a change in job duties or your organization hasn't had a change that eliminates his position, and your company continues to provide him with office space & supplies as well as control how/when he gets the job done.

    Brush up on ADEA and present your findings to your mgmt staff. If the fella is willing to step back voluntarily in a retirement, your mgmt staff may have a viable option. Ushering him out the door and out of his benefits because of his age and age-related conditions to save money is handing him a lawsuit he can win.

    best wishes.
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  • dwittdwitt 26 Posts
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    I really appreciate all your responses. I should clarify a few things:

    We are a somewhat large company (employing close to 200 employees at 3 locations in the U.S.). We have "outside salesmen" scattered all over the nation. They do not have an actual office or space at our facility, rather these salesmen work out of the home and travel as necessary. We have about 5 salesmen working on a commission basis employed as "contractors", and 11 salesmen employed as "employees" with the company. (The 5 independent contractors probably work for other companies as well). As independent contractors, they do not have to report to a Manager, nor are they directed to work in any way. They do not submit invoices for payment, rather there is a formula for commission.

    We have never converted an "employee" to an "independent contractor" and I am concerned about ramifications. I am told by my manager that this individual would actually earn more money.

    I fear that once they have maintained him as an independent for a period of time, that they will easily be able to let him go and quite honestly, that is where they ultimately want to go.

    I'm not sure how to oppose those above me on this...


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  • NaeNae55NaeNae55 3,243 Posts
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    [font size="1" color="#FF0000"]LAST EDITED ON 05-27-08 AT 09:47AM (CST)[/font][br][br]It is simple. x:D Ask them to explain their legitimate (read legal) business reason why this particular employee should be converted while the other 10 remain employees. If they truly have a legitimate business reason for the change then you are making a business decision relating to an employee who just happens to be in a protected class. If the explanation does not sound absolutely legitimate, then you need to have some cases ready to present showing how others have tried that tact and failed...and what it ultimately cost them. I also like to work in a reminder of how bad they will look if their attempt to save a few bucks cost them big time in public relations, lawyer fees and settlement fees. Most managers get to be managers because they are smart and can see the big picture (once it is pointed out to them.)

    Good luck!

    Nae
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