Welcome to Contractor Hell, Grads

(Photo credit: PopPhoto.com)

It’s the peak of graduation season. Time for grads to celebrate their newfound freedom, while parents puff up with pride–and probably relief.

Unfortunately, an undergraduate degree these days often doubles as a ticket into the salt mines of illegal office job contracting. Many former students find themselves jobs that exploit their legal naiveté to strip them of their workers’ rights. Indeed, companies so frequently defraud entry-level contractors–especially in the tech field–that the practice seems impermeable to scrutiny.


An ambitious grad thrusts her application into the business world like a victory flag. 3.9 GPA, summa cum laude liberal arts degree, a real smarty pants. After much sifting, an Internet company named MetaBrain, Inc. picks up her application.

The phone rings.
“Hi, my name’s Celine DeSchlong from Metabrain. I’m happy to say your application looks like a good fit.”
Mary, let’s call her, quivers with joy. “OMG! That’s wonderful news!”
A successful interview follows. DeSchlong offers Mary the job. “All you need to do is sign this independent contractor agreement we’re going to fax you. You start Monday.”

Mary fails to note is that she has signed herself into win-lose situation. Win for DeSchlong, that is, and lose for Mary.

The contract tells Mary to come into the MetaBrain office 40 hours a week. DeSchlong acts as her direct supervisor. Metabrain provides a desk, chairs, computer, and office supplies. Mary attends company meetings. Dress is “business casual.” To her, it sounds like a pretty good deal.

Can anyone see what’s wrong with this picture?

The simplest definition of an independent contractor, according to the IRS, is this:

An individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.

Having Mary sign a contract to come into a supervised office where supplies are provided, dress code is guided, and hours are set is illegal. She is not, by law, an independent contractor. DeSchlong and MetaBrain have complete control over the means and methods with which she gets the work done.

Here’s what the company Business and Legal Reports has to say about contractors:

1) Employers don’t pay employment taxes or withhold federal, state, or local taxes from payments made to independent contractors.
Translation: Independent contractors pay quarterly estimated taxes. The onus is on the independent contractor to figure this somewhat obscure system out. Many grads don’t even know they’re officially independent contractors, and end up surprised when they’re hosed with accrued interest on April 15.
2) Independent contractors aren’t included in benefits programs, and they’re not eligible for unemployment insurance.
Translation: Employer saves a grip of money. Contractor is responsible for their own healthcare, 401K, etc. That’s $100+/month that most grads simply aren’t willing to pay.
3) Wage, hour, and employment discrimination laws also do not apply to independent contractors.
Translation: Even though Mary has to come into work every day, she’s not subject to any standard employment laws. Scary.
4) And, finally, problems arise when individuals who are truly employees are treated by employers as independent contractors.
Translation: Bureaucrats acknowledge they’ve seen this problem before.

MetaBrain is exploiting Mary’s ignorance and an inefficient government bureaucracy to cheat its newest employee of her rights.

I spoke to a state Department of Labor representative about illegal contracts. She admitted that they were relatively widespread. “We go after those guys,” she reassured me. “I like to say that if contractors aren’t able to work in their bunny slippers, something’s fishy.”

Unfortunately, in practice, inefficiencies often prevent state governments from taking punitive action.

The fact is that a great number of businesses are putting grads to work in illegal conditions that are cheap for businesses, and expensive for naïve grads, especially around tax time. It’s so common and insidious that most people on both ends just shrug their shoulders at it.

And they wonder why new grads are so likely to hop from job to job…

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  • They ought to hang these bad companies from the highest pole. Throw the whole book at them. Tar and feather them!