figure out ~user's relationship to Gratipay

[chadwhitacre]

@rohitpaulk is on the Gratipay team. He contributes work and was receiving payments under our old team/members system. What is his relationship to Gratipay, LLC?

"Global HR Hot Topic—July 2011: Overseas Independent Contractor or de Facto Employee?: Cracking the Classification Conundrum"

[chadwhitacre]

For example, in India an independent contractor agreement should (accurately) say the contractor has a "permanent tax account number" and withholds and pays his own taxes.

[chadwhitacre]

This is prerequisite to bringing back payroll (https://github.com/gratipay/gratipay.com/issues/3433).

[rohitpaulk]

/me checks how Elance/Upwork handled this...

[chadwhitacre]

The U.S. situation:

https://www.legalzoom.com/articles/what-you-need-to-know-about-hiring-independent-contractors http://www.dol.gov/whd/regs/compliance/whdfs13.pdf http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee

[rohitpaulk]

Nope, Elance hasn't asked me for my PAN(permanent tax account) number. I have an option to enter it if I want it to appear on invoices, but that's it. PayPal did collect my PAN though.

@whit537 - You did say that we're similar to Upwork now, so if they didn't require this - I'm guessing there's a way around this without terming me as an employee?

[chadwhitacre]

The Department of Labor:

While the factors considered can vary, and while no one set of factors is exclusive, the following factors are generally considered when determining whether an employment relationship exists under the FLSA (i.e., whether a worker is an employee, as opposed to an independent contractor):

1. The extent to which the work performed is an integral part of the employer’s business.
2. Whether the worker’s managerial skills affect his or her opportunity for profit and loss.
3. The relative investments in facilities and equipment by the worker and the employer.
4. The worker’s skill and initiative.
5. The permanency of the worker’s relationship with the employer.
6. The nature and degree of control by the employer.

There are certain factors which are immaterial in determining the existence of an employment relationship. For example, the fact that the worker has signed an agreement stating that he or she is an independent contractor is not controlling because the reality of the working relationship – and not the label given to the relationship in an agreement – is determinative. Likewise, the fact that the worker has incorporated a business and/or is licensed by a State/local government agency has little bearing on determining the existence of an employment relationship. Additionally, the Supreme Court has held that employee status is not determined by the time or mode of pay.

http://www.dol.gov/whd/regs/compliance/whdfs13.pdf

[chadwhitacre]

The IRS:

Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:

• Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
• Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
• Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee

[rohitpaulk]

For a "reality check" in assessing whether an overseas services provider might be legitimately engaged as an independent contractor, just ask: If structuring this position as an independent contractor is such a great idea, then why not go ahead and engage all this person's US counterparts as independent contractors, too? Beware if your answer is: That would never fly—the US IRS and other stateside authorities would see right through this and deem this job to be employment. If that is the case, that same reasoning very likely applies abroad.

[chadwhitacre]

You did say that we're similar to Upwork now, so if they didn't require this - I'm guessing there's a way around this without terming me as an employee?

What was your relationship like with the companies you worked with on Elance/Upwork? Was it more similar or different than your relationship with Gratipay?

[rohitpaulk]

A usual freelancer-client relationship, @whit537. If I were to compare, Gratipay would be on the safer side of terming me as an independent contractor. I've done freelance jobs that required 40 hrs/week, and had much more control over how I work.

Most every country would uphold independent contractor status if a contractor can truthfully answer "yes" to six questions:

1. Do you have authoritative control to perform your tasks the way you want to—free from instruction on process, free from discipline, free from work rules, and free from your principal's supervision and control? (Abroad this is called the "subordination" test.)
2. Are you free to set your own schedule and work hours?
3. Do you provide your own office and supplies, pay your own business expenses and hire your own assistants?
4. Do you get paid only for work you actually do, such as hourly pay or task pay, no paid vacations/holidays? (In the Dominican Republic, for example, a contractor should never receive a salary.)
5. Do you take business risks and bear the ultimate risk of profit or loss? (The "business risk" factor is vital in Puerto Rico, where it is called the "economic reality" test, as well as in parts of China, per an August 2009 Beijing declaration on contractor classification.)
6. Can you, and do you, have other paying clients, and do you market your services to the public? (Exclusive, full-time independent contractors pose a special risk; Peru, for example, applies a rebuttable presumption that a full-time contractor is a de facto employee.)

Our answer to all of these questions seems like a safe yes to me.

[rohitpaulk]

7 . Are you free from non-compete, non-solicitation and other post-termination restrictions? 8 . Are you free to determine the order and sequence of your tasks? 9 . Do you bear the possibility of casualty loss (property/personal injury) and do you buy insurance? 10 . Is your pay free from employee-benefit/executivecompensation elements like health/life/disability insurance, bonuses and equity awards? 11 . Do you make tax/social security payments and withholdings like a business? (This is a vital issue in India.) 12 . Is your relationship explicitly temporary and short-term? (In Sweden, a relationship of more than six to nine months risks challenge; in the Dominican Republic, serially renewed independent contracts risk challenge.) 13 . Do your business cards and letterhead clarify your independence from the principal and do you use a title unrelated to the company? 14 . Are you kept off of the principal's organization charts and internal structure documents? 15 . Do you refrain from attending the principal's training sessions as a student?

12 and 14 would be a no, I guess?

I'm not sure about 11. I do pay and file taxes for my income through PayPal (Elance, Gratipay, Assembly).

[chadwhitacre]

In fact, contractor classification happens to be one of the very few points of employment law where we can make useful generalizations across jurisdictions.

[chadwhitacre]

(12) is definitely no. I, at least, want you to be around a long time. :)

(14) is a no, insofar as we have an org chart.

Our answer to all of these questions [1 through 6] seems like a safe yes to me.

Well ...

(1) Do you have authoritative control to perform your tasks the way you want to—free from instruction on process, free from discipline, free from work rules, and free from your principal's supervision and control? (Abroad this is called the "subordination" test.)

What about comments such as https://github.com/gratipay/gratipay.com/issues/3399#issuecomment-101629080, and tickets like https://github.com/gratipay/inside.gratipay.com/issues/136?

(4) Do you get paid only for work you actually do, such as hourly pay or task pay, no paid vacations/holidays? (In the Dominican Republic, for example, a contractor should never receive a salary.)

You certainly don't (well, didn't) get hourly pay or task pay. When we were actually paying you, we were paying you weekly regardless of your work.

[chadwhitacre]

There is a third alternative to the employee/contractor divide: owner.

[chadwhitacre]

(8) Are you free to determine the order and sequence of your tasks?

To an extent, but what about https://github.com/gratipay/gratipay.com/issues/3520#issuecomment-109010612?

[chadwhitacre]

Limited Liability Company (LLC) and Foreign Owners

[rohitpaulk]

@whit537 - What's our lawyer's opinion on this?

[chadwhitacre]

Good question.

[chadwhitacre]

@rohitpaulk We may need to catch up with our payments to our lawyer first before we can ask him to work on this.

[chadwhitacre]

@rohitpaulk If you're an owner of the LLC, then we need to give 35% of what we pay you to the U.S. government. That is onerous. Presumably you would then need to pay taxes in India on what you receive as well, and probably on the full pre-U.S.-tax amount.

[chadwhitacre]

Let's use this as the top-level ticket for the new Payroll milestone.

https://github.com/gratipay/inside.gratipay.com/milestones/Payroll https://github.com/gratipay/gratipay.com/milestones/Payroll

[chadwhitacre]

@dougwilson and I had a long discussion about this last night, over at https://github.com/gratipay/inside.gratipay.com/issues/211#issuecomment-109494621. See there for :rabbit: chasing and starting to wrap our head around some of the issues here. Someone should summarize that over here. :)

[chadwhitacre]

@webmaven at https://github.com/gratipay/gratipay.com/issues/3529#issuecomment-109608659:

This might be a point at which you should ask bkuhn about what the bookkeeping arrangements are for Fiscal Sponsors, and what the arrangement between a Fiscal Sponsor and the Gratipay project vs. the LLC would be like.

[chadwhitacre]

Here's what's throwing me for a loop on this: all teams on Gratipay need to be open to dealing others into revenue sharing. It's really looking to me like a legally solid international revenue sharing framework is going to add a lot of friction to the sign-up process, both for teams and for individuals. What I'm seeing is that we have two options:

1. Drop revenue sharing as a hard requirement for Gratipay teams.
2. Accept the increased friction in team and individual onboarding.

[chadwhitacre]

One way or another, we need to figure out a way to start paying you again, @rohitpaulk. Gratipay is getting lonely without you. :)

I want to make you an owner. Are you willing to be a guinea pig for that process? We can work with you as a contractor in the meantime, though I think we shouldn't use the normal team take system for contractors.

[webmaven]

@whit537:

Here's what's throwing me for a loop on this: all teams on Gratipay need to be open to dealing others into revenue sharing.

Not sure about that. What about the team owner covering costs first? There may not be much left over after that for many teams.

[techtonik]

So, to summarize the issue. There only two choices for a person to be able to receive money on GP USA.

1. an independent contractor
2. an employee

Is that right? Then the next question is how to determine who you are. Looks like it needs a diagram and a poll. After you pass the poll "Who are you?", you've got the metrics.

independent contractor  <-------|-----------------------------------> employee

with 80% probability you're (as a person, resident of India) is an independent contractor
 for Gratipay (who is a company, and US resident)

Then you must evaluate your options:

1. What is the consequence of being evaluated wrong "as employee"?
2. What is the consequence of being evaluated wrong "as independent contractor"? This is needed to see if it is possible to get rid of uncertainty and always be on the safe side by just paying more.

Then look trough a list of requirements. This is what government forces you to do. This needs to be carefully explained.

[rohitpaulk]

Are you willing to be a guinea pig for that process?

I'm game :wink:

Gratipay is getting lonely without you.

@whit537 - not getting paid isn't the primary reason that I'm spending less time here - it's other commitments. I'll try my best to be around on paydays (and for anything else that's really really important), but otherwise my availability will be sparse in June. July onwards, back to normal :dancer:

I want Gratipay to succeed, and I don't mind if I'm not paid for a while. It's totally fine if my payments are restored only when we're ready to open Payroll for all teams on Gratipay.

[tshepang]

@rohitpaulk rocks!

[techtonik]

!m @rohitpaulk =)

[chadwhitacre]

!m @rohitpaulk

Thank you! :dancer:

[chadwhitacre]

There only two choices[.]

@techtonik Don't forget the crucial third option (https://github.com/gratipay/inside.gratipay.com/issues/242#issuecomment-109068890):

1. an independent contractor
2. an employee
3. an owner

Then the next question is how to determine who you are. Then look through a list of requirements.

These are entangled, in that the much higher legal requirements surrounding employment compared with the other two options indicate against employment as a viable category to begin with. Gratipay, LLC employing @rohitpaulk is much harder then either contracting with him or bringing him on as an owner.

relationship	bureaucracy level (1-5; 1 is low)
independent contractor	1
employee (same jurisdiction)	4
employee (different jurisdiction)	5-6
owner	2

Looks like it needs a diagram and a poll.

I would also like to invoke the spirit of the law, and our intentions. What is the intention behind the legal distinctions between contractor, employee, and owner? What is our intention?

[chadwhitacre]

Not sure about that. What about the team owner covering costs first? There may not be much left over after that for many teams.

@webmaven Yeah, that's why I hedged with "open to dealing others into revenue sharing." Surely new and small projects won't have revenue to share. But, on the one hand, we want to encourage and expect growth; we want to change the mindset of open projects that they're sort of "a-economic." On the other hand, we want to avoid situations where the owner of a team with revenue is surprised when a contributor shows up and expects to share in that revenue (cf. sqlalchemy in this comment).

[webmaven]

@whit537:

Surely new and small projects won't have revenue to share.

They may have gross revenue (however small), what they won't have is net revenue (and certainly not profits).

[chadwhitacre]

A US state lawsuit was brought against Microsoft in 1992 representing 8,558 current and former employees that had been classified as "temporary" and "freelance", and became known as Vizcaino v. Microsoft. In 1993, the suit became a US Federal Class Action in the United States District Court Western District Of Washington At Seattle as No. C93-178C. The Final Settlement came in 2005. The case was decided on the (IRS-defined) basis that such "permatemps" had their jobs defined by Microsoft, worked alongside regular employees doing the same work, and worked for long terms. After a series of court setbacks including three reversals on appeal, Microsoft settled the suit for US $93 million.

A side effect of the "permatemp" lawsuit is that now contract employees are prevented from participating in team morale events and other activities that could be construed as making them "employees". They are also limited to one-year contracts and must leave after that time for 100 days before returning under contract.

https://en.wikipedia.org/wiki/Criticism_of_Microsoft#Labor_practices

With regard to the individuals provided by temporary staffing agencies, the court used the following five factor test in determining whether they were truly “common law employees” and therefore eligible to participate in the [stock benefit] plan:

• Recruitment
• Training
• Duration of employment
• Right to assign additional work
• Control over the relationship between worker and agency

https://en.wikipedia.org/wiki/Permatemp#Vizcaino_v._Microsoft

[chadwhitacre]

I've done freelance jobs that required 40 hrs/week, and had much more control over how I work.

@rohitpaulk Of course, it's far from guaranteed that the companies working with you on these terms were, shall we say, following the spirit of the law. ;-)

[mattbk]

+1 (I think) from https://gratipay.freshdesk.com/helpdesk/tickets/2427. Does a ~user/owner assume liability for reporting income to the team to the government, in the same way an employer must?

[chadwhitacre]

Does a ~user/owner assume liability for reporting income to the team to the government, in the same way an employer must?

Yes. That's section 5.iii of the new terms.

[mattbk]

Realizing now that my recent comment has nothing to do with this issue, unless this issue is representative of the larger legal implications for all teams using Gratipay for payroll.

Since I'm commenting anyway, this issue is listed as blocking payroll from happening.

[chadwhitacre]

[...] unless this issue is representative of the larger legal implications for all teams using Gratipay for payroll.

It is.

[mattbk]

I think all of this comes down to https://github.com/gratipay/inside.gratipay.com/issues/285, who should be able to explain (in excruciating detail) what the reporting requirements are for anyone handing out money in exchange for work. Gratipay would ideally facilitate this exchange of information and make it clear (https://github.com/gratipay/gratipay.com/issues/3539#issuecomment-123501248) that reporting responsibility is on the team owner, because that is who the work is for. I imagine this will be difficult to think about for many teams because they don't see themselves as businesses.

See also https://www.mturk.com/mturk/help?helpPage=worker#tax_pay_taxes_on_earnings.

[chadwhitacre]

I read Small is Beautiful over vacation (#302). He has an interesting thought experiment in the last chapter, wherein he suggests that we reformulate taxes as an equity share for the "public hand." Having recently read Thinking, Fast and Slow, the suggestion rings true, that the psychological framing of such things matters. I think that should inform how we approach this issue.

[chadwhitacre]

@chrisdev points out Estonia as a jurisdiction that has much more favorable corporate taxes. What if we figured out how to make "companies as a service" with Estonia as the underlying jurisdiction, and then we voluntarily paid them after all? :dancer:

[chrisdev]

The process for setting up a Company in Estonia starts with the acquisition of an EE Card https://e-estonia.com/e-residents/about/ - 50 Euro The E Residency Card comes with an API that allows for digital signing. Your can then use this to set up an Estonian based company https://e-estonia.com/component/e-business-register/ I found this about the cost and benefits https://www.quora.com/What-are-the-costs-benefits-of-incorporating-a-tech-startup-in-Estonia-if-you-are-from-America Of course you'll probably need a lawyer to validate this stuff. Extra so if you're a US citizen :smile:

[chadwhitacre]

Thanks for the info, @chrisdev! Copying over to #324 ...

[mattbk]

Could we rename this to more accurately represent what it's about? It's confusing coming from https://github.com/gratipay/gratipay.com/issues/3433#issuecomment-109518841 to see "figure out rohitpaulk's relationship to Gratipay, LLC" when the real topic is how to legally relate ~users and Teams.

[chadwhitacre]

@mattbk Go for it. :-)

[chadwhitacre]

To: Eric Davis (ref) Subject: Gratipay, fluid corp structure

Great (re)connecting with you this evening! I would love to get together to chat about Gratipay's need for a scalable model of fluid corporate structure. What's your availability like next Thursday (Nov 5) for an initial conversation?

For background, here's our big long ticket about the issue:

https://github.com/gratipay/inside.gratipay.com/issues/242

[chadwhitacre]

To: Eric Subject: help with international co-op?

Chad Whitacre here from Gratipay, just left you a voicemail as well. We met after Jessica Jackley's Speak Freely a little while back. My startup needs help a) organizing as a cooperative and b) figuring out how to pay ourselves. This is within your wheelhouse, yeah? Do you have time in the next couple weeks for a conversation?

Will include #411 in my next communication.

[chadwhitacre]

To: Eric

Actually, let's track attempts to find a lawyer over on #72.