[00:00:03] Emily Stringer: Hello, everyone, and welcome to today's webinar, Tax Reform in Today's Independent Workforce, featuring Gene Zaino and Eric Rumbaugh. My name is Emily Stringer and I will be moderating the webinar today. A little background on me. I've been with MBO for over seven and a half years. As a Consultant Services Advisor, I respond to requests from independents who are curious about both service offerings. This is done through consultation appointments, where we learn more about your background and needs and determine if both services are the right fit for your business of one. Now for some housekeeping on the webinar set setup, first and foremost, you can see the controls listed here. Secondly, we will be emailing a slide deck and a recorded copy of the entire webinar to all registrants within the next week. Last, we will be taking questions throughout there, and will be addressed at the end of the presentation. Any questions? We do not get to answer via email after the presentation. If you want to follow the presentation on Twitter, use #MBOWeb to submit your questions and comments @MBOPartners. Here at MBO, we're all about the independent workforce economy, we have built an organization that is focused on the world of the independent. We promote the success of the independent workforce and the organizations which engage them and think of ourselves as being independent driven, but enterprise proven by way of having a large number of Fortune 500 clients. The independent workforce represents a significant portion of the U.S. economy, Imbo has been researching this segment of our workforce since 2011 and we have seen it grow significantly. As you can see, it's growing five times faster than traditional employment. Independent workers go by many names when we're talking about the independent workforce. That these workers identify themselves as freelancers to ninety nines, gig workers and professional offices, just to name a few. For the first time in many years, the number of job openings has exceeded hiring, we're at a point where you could say there's a war for talent. Talent is in demand, has control and choice. We've done research on what it takes for organizations to understand how to relate to these people so that clients can become the client of choice, 65 percent of independents say working independently was their choice completely. What's surprising is these folks even cite being healthier because they experience less stress than traditional workers. In this presentation, we are going to be addressing the new Tax Cuts and Jobs Act that was passed through Congress at the end of last year. There are still many learnings to come out about the new tax law, and we are awaiting the IRS guidance on certain areas of the legislation. We will provide you with our understanding of the law. But please realize that this is not tax advice. If you are going to act on any tax planning items discussed with, then please ensure that you seek professional advice at this time. It is my pleasure to introduce you to today's distinguished speakers, Mr. Gene Zaino, CEO of MBO partners, and Mr. Eric Rumbaugh, MBO Partners General Counsel, who is a partner at law firm Michael Best And Friedrich. Gene is a nationally recognized expert in the contract workforce market. In addition to launching MBO partners. He is an avid entrepreneur who, in addition to spending several years at KPMG, builds several consulting companies funded by financial luminaries Kleiner Perkins Caufield Byers, Austin Ventures and Goldman Sachs. He has also served on the expert advisory board for the Human Capital Institute and has led executive seminars at the Project Management Institute, Staffing Industry Analyst and the Military Officers Association of America. Gene is also a member of the Staffing Industry Analyst Hall of Fame and has been on all five staffing industry 100 lists. He is a frequent speaker and has appeared in publications, radio and television, including CNN, CNBC, Forbes, the Harvard Business Review and The Wall Street Journal. Also a member of the Staffing 100. Eric has a nationally recognized practice in the area of contingent labor. He is particularly active in litigating matters involving trade secrets and non-competition agreements for both users and providers of contingent talent. He is a prominent national speaker and writer in a variety of employment law topics. Eric has been named to the best lawyers in America employment law, Ed. and was named leading labor and employment lawyer by Chambers USA in 2017. Today, we'll be discussing three areas with our speakers. First, Gene will lead us through the impacts to independence, then Eric will lead us through what this legislation ultimately means to us. And finally, Gene will summarize with industry trends and insights. At the end of the presentation, the three of us will lead you through Q&A. Gene, at this time, I will turn it over to you. [00:06:20]

[00:06:23] Gene Zaino: Well, thank you very much, Emily, and we need to. I appreciate that long introduction and that's flattering. Thank you very much. And I'm pleased to have my good friend and colleague Eric joining me, who will be speaking shortly. But I will first talk to you about a new tax law that you've probably heard about. And specifically, we're going to talk about how we believe this new law will impact the independent workforce. Those are the people that Emily just went through that we have been studying for years and that have been growing significantly and go by many names, gig economy freelancers, independent contractors, independent consultants. We like to use the term independent worker, which is kind of all encompassing, but generally talks to the people that are working for companies doing freelance and consulting projects and the particular area of the law. And it's a fairly complex area, and this law is extremely long and covers many areas. But the area that I'm going to speak about is one that is a new section of the tax code called Section 199A. You will be hearing a lot about 199A. I don't know why it's called 199A. And maybe it could have been two hundred, but it's 199A. And we're going to talk about how our view of this impacts this independent workforce. And, you know, before we really get into this, which is, you know, I'm going to do my best and try to explain all these complexities to you. But I just want to, you know, say a few things before we move on. And that is that this is brand new. The IRS has yet to come out with its guidance and its regulations and something it calls the Blue Book, which will be out later this summer. But there's a lot of talk already about how this could impact the independent workforce, both those people that are providing independent consulting and also the companies that use this talent to deliver work for them. And I could say that there's never been a time where I believe getting this right is more important than ever. It could be extremely beneficial or you could walk into minefields. So extreme caution in that what we're going to talk about today is, is something to give you a kind of a primer and an understanding as to how we see this. But I'd be really careful before making any changes to anything you're doing without further really understanding the way the IRS will implement this. So obviously, you know, being located right outside of Washington, D.C. and, you know, one of the benefits of that is that I often get to get to Capitol Hill and get to speak with various members of the staff, sometimes actually the people in Congress, sometimes the senators. Because this is critical to the customers we serve. I've been following this for quite some time since Thanksgiving, really understanding and going through the way this tax law sausage has been made. And I did that so we could really understand what is the logic behind some of the things that they've put together. Also understanding from the some of the people that we were able to speak to, how they view and what they know and what are what are what do they believe are the intentions? Because I believe a lot of this is about, you know, where they want to go with this. So, you know, in general, I believe this 199A is going to be jet fuel for the independent workforce. This is just one more item that is going to incentivize individuals to want to gain control of their career, go out and be a freelancer, be an independent contractor, and start their own business. And at the same time as Emily just showed you, in terms of the demand for talent, companies are going to have to figure out what is the best way, the safest way, the most efficient way and more importantly, how to attract this segment of the workforce. So with that, I'm going to ask Emily to change to the next slide and we'll start digging into what is 199A. Basically, it's a new deduction. Tax deduction from income for passing through business entities.

[00:11:43] Gene Zaino: Now, let me first say, what is a pass through business entity? That's a business where the profit of that business is passed through to your personal income tax return as opposed to. None passed through businesses like what's called a C corp, which are generally large companies, public companies, those are entities that actually are individual. They pay taxes on themselves as a corporation. The only way you get income to the individual is they have to declare a dividend and then you pay tax on that dividend. That's why they say corporations or double taxation, because the corporation pays tax and then you have to declare a dividend to get it to your personal income and you pay tax on that dividend passed through companies. Entities were created primarily for small companies. These are called s corporations. So proprietary partnerships. And there's some others. But those are primarily the key. And what those are about is you still run a separate set of books and you have a separate company, but the profit of that company gets passed through to the owners. And they're taxed as their personal individual income tax. This 199A provided a benefit that says we're going to take 20% right off that business income. As it hits your individual tax return and those profits are taxed at your individual rates, which also have been reduced. And it applies to tax years that start after the end of last year, as with the current tax law, it expires in 2025 because it was all part of the budget reconciliation process so that the Republicans can pass it without Democratic votes. And as a result of that, there is a time, time element that expires in 2025. That's unless it's extended, and it gives these pass through entities a tax advantage that's now comparable to the tax cut that was given to the largest corporations, for those of you that might pay attention to this stuff, you might remember back in the fall. 

[00:14:22] Gene Zaino: One of the central themes for tax reform was to reduce corporate taxes so that large companies that are earning income outside of the United States can be more competitive and have a lower tax rate so that they will bring jobs back to America and that other companies will also want to be based in America. So our tax, our corporate tax system in the past was up to 35 percent. Now that's been changed to twenty one percent. But again, that's not for passing through entities. So when that happened, when that. Corporate tax rate for corporations, large companies dropped to 21 percent. All of a sudden, you had all the smaller companies, the S corps and partnerships and sole proprietors saying, hey, that big company across the street just got a reduction to twenty one percent. Now I'm at a competitive disadvantage. What are you going to do for me and the Congressman and said, OK, we'll figure this out since you have to pay tax on your personal tax return, which we dropped from 39 percent to 37 percent on the high end. We'll give you a 20 percent reduction of your business income before it comes to your personal. So that was the reason for why 199A was put in place. I'm going to go to the next slide. 

[00:15:56] Gene Zaino: Let's talk about what is 199 A and how do you actually calculate it? So, you know, for most independents that produce most of their income as an independent, the deduction will likely be and I know this is going to get complicated, by the way I simplified it. It's far more complicated than that. So, there's a caution here. You know, you don't if you're going to determine your 199A deduction, you really need professional advice. But for those independents that are generating most of their income as an independent, this deduction will likely be the lesser of let's call it A and B and A is 20 percent. Of a new term called Qualified Business Income. And I'm going to get to what that means, but right now, think of qualified business income as the amount of income your business is passing through to your personal return. So it's either 20 percent of that, which is QBI or 50 percent. Of the wages that that company paid, so the reason for that is they want you to pay, they want more W2 wages, right in your companies. They want more employees. So if you have a lot of employees in your past, in your corporation or partnership, then you won't have more opportunities to have a full 20 percent of your qualified business income. If you don't have a lot of wages, well, then they're putting a cap. That's one of the limitations, is 50 percent of those wages. So just hold on to that. So it's either 20 percent of the qualified business income or 50 percent of your wage. Or if your taxable income on your tax return is lower than that number in A it's 20 percent of your taxable income. So it's the lesser of those two. And capital gains don't don't get removed from that calculation. So and again, this is simplified, believe it or not, if there are other factors that come into play, if you own property, if you have other types of dividends, and it actually depends on whether you're filing a single or joint. But in general, for most of the people that we are working with and that are, you know, typical freelancers and independent contractors. This is the general theme for you to come get a perspective on what 199A nine is. And for those of you that understand what an S corporation is and what self employment income is, you still have to pay self employment taxes, not income taxes, but self employment taxes, which would basically be Social Security, Medicare. You have to pay that still on the full amount before this 20 percent deduction. So a little note on the bottom there says that if you have a hundred thousand dollars of pass-through income, you still have to pay your self-employment tax on the hundred thousand before the twenty thousand dollar reduction. I know this is like hard stuff to, you know, help them keep everybody awake here, I'll do my best. So let's go to the next slide. Thank you, Emily. So now let's discuss this new term, which, you know, you've learned a couple of new terms. One, 1990, you're going to hear lots about that in the next term as QBI qualified business income. So, again, in general, for the audience that we're really speaking to for independence, qualified business income is basically the income from your business that's passed through. That's not wages. So, however, if you click again, Emily, for me. There are two key restrictions. And then there's an exception, so bear with me, we're going to get through this, so the two reached restrictions and the first one is specified service trade, a third new term for you to learn 199A, a qualified business income and now specified service trade. So what does that mean? That means that this law was not intended to really be given the privilege of a tax deduction to the services industry. Specifically, they talk about health law, accounting, actuarial science, performing arts consulting, athletics, financial services, brokerage services, and they basically say all of those specified service trades. Are not part of qualified business income, which means that sucks, you don't get the deduction, but hold on, there's more to this later, so don't get too upset. Yeah. They specifically exclude architects and engineers. They have a free pass, they all do. Business income. Is considered qualified business income and for purposes of they're not part of a specified service trade. So QBI, which is what's the basis for the 199A deduction? Cannot be applied to specified service trades, which are trades of which are services when the owners. Or the employees are the key assets, so entertainers, sports people, obviously freelancers and consultants, but there's there's there's there's more. Let's go to the next restriction.

[00:22:29] Gene Zaino: Reasonable compensation for S corporations. This is nothing new, but it's really important right now. So. The current law states that an owner of an s corporation. Must pay herself. Reasonable compensation. The same compensation and wages that that person, that owner would have to pay to bring someone in to do their job. And the reason why this is more important now than ever to be done right is because this is going to create potential abuse for people wanting to pay themselves a small wage to have a higher pass through income that gets the 20 percent deduction. There is a very keen awareness of this and there will be very strict enforcement. So reasonable compensation. For an s corporation is very important. And when we're talking about independent workers who are freelancers, who are basically their only owner of that, the only person in the company, there is one person company. And if their income from that business is 100 percent as a result of what they're doing in their professional service, basically everything is compensation to them. Therefore, you'd have a zero pass through income for them for most of the situations. Another problem is that, you know, why am I saying this is great for the independent workforce? Well, there's one other thing there on the third bullet on the right. There's no such law. For reasonable compensation for sole proprietors. And whether that gets changed or not is yet to be determined, but currently it appears that there is no reasonable compensation requirement for a sole proprietor. That is a pass through entity. And that could also be an LLC set up as a single member. So that means it's a one person LLC that's set up as a sole proprietorship. And that's a very interesting scenario. Now, everything I just said regarding the specified service trades. Is there an exception if your income is below a certain level of threshold. So the reason why this came into play is because once all of those specified surface trades realized, hey, I'm not getting this benefit of 199A. The owners of this law of writing said, OK, well, we'll let you take advantage as long as you're not a very high income business. So for businesses that are under a certain threshold. They are not concerned about the specified service trade, which means every service will get it, freelancers, independent contractors, truck drivers. Doesn't matter who you are, if you have passed through income, then you're in. If and if your income is below these thresholds, then you get the benefit of one. What are those thresholds? Well, one hundred and fifty seven thousand five hundred dollars per year. If you're filing as an individual single filer, if you're married, filing joint, it's three hundred and fifteen thousand. At that level or under your 199A deduction from your income is either 20 percent of that income or 20 percent of your taxable income. Again, without capital gains. So that's much more digestible and much more irrelevant to most of the people that are in the independent workforce. Now, that deduction phases out, goes to zero as you earn more money so you don't get it on the one hundred and fifty seven thousand five hundred and then it goes away. You don't get it at all. It phases out over the next fifty thousand singles. So that's two hundred and seven thousand five hundred. If you have passed through income above two hundred and seventy five hundred you don't get any deduction if you are filing jointly and you have income over four hundred and fifteen thousand dollars. Then you don't get any deduction, and in between that fifty thousand one hundred, depending on single or joint, it gradually phases down from 20 percent to 19 to 18 to 17 to zero. So this is a very key point. If you're a hundred and fifty thousand dollars a year, you know, independent consultant, this could be very interesting to you. If you're set up properly, the restrictions on reasonable compensation still apply for corporations. So that's a key factor to go to the next site. This is a bit of a quick, little simplified example, so as I just said a little while ago, if you assume this is an independent consultant. Married filing joint, and they have one hundred and fifty thousand dollars of income from doing their freelance and independent consulting work. They have business expenses, they go to conferences, they have some technology, they have supplies, they do some training and professional development. Their total expenses are thirty thousand. They have an income of one hundred and twenty thousand. Since it's under the threshold, it's qualified business income of 120000. They still pay self employment tax on that one hundred and twenty thousand, which is their income. They might have a health savings account, which is five thousand dollars. In this example, they have a spouse that contributed, that had fifty thousand dollars of W-2 income working at a job, and then they took a standard deduction on their tax return, which is now twenty four thousand dollars is your standard deduction. For married, that gives them an income before any 199A deduction of one hundred twenty two thousand six hundred and forty dollars. So in the example, you get 20 percent of the qualified business income. Or taxable income, whichever is less in this example, since qualified business income is less, they get a 20 percent deduction on the one hundred and twenty thousand, which is twenty four thousand dollars, which makes their taxable income. 98,640 which puts them in a twenty four percent tax bracket, is their personal income tax bracket. That means they have a savings of five thousand six, seven hundred and sixty dollars. So this 199A and this example was an overly simplified example, but it kind of gets you the understanding of how it works. It's a five or six thousand dollar savings. Pretty significant. So wrapping this up on the next slide, you know, as I said earlier, there's further guidance to come. So please be careful with this. The IRS is working hard, trying to really go through the over 500 pages of this law, trying to figure out how to create worksheets, how to create forms, and how to actually put regulations in place. And there they will release this and what they call their blue book, which is supposed to be coming out later this summer. There's also talk already of a potential phase two of this law, and I think phase two of this law is supposed to be for extending it beyond 2025, but also to correct and fill in some of the unintended consequences. And any new tax legislation of this magnitude is going to have unintended, unintended consequences probably for years to come. So I hope that was helpful to understand what this new tax law might be doing for our independent workforce and how this will be more of a motivator for people to want to start their own independent business. And with that, I'm going to now have Eric explain why it's so important to now be able to understand the difference between an independent contractor and an employee.

[00:32:18] Eric Rumbaugh: OK, hello, everyone. I am going to start with a very short description of what I do and how it plays into how I'm analyzing this. I've been practicing law since 1989, so I guess that makes me 29 years of practicing law. And since the beginning, I've been doing employment law largely in the area of contingent labor. I in my firm represent buyers and suppliers of contingent labor. So we represent independent, independent consultant entities that supply independent consultants and the entities that engage them. And we're constantly working on trying to deal with these rules and have an analysis of them. The big change in this tax rule is, is that it has changed the playing field such that many people, maybe hundreds of thousands or even millions of people for whom the decision as to whether to work as in one business form or is an employer's independent contractor might have been a push and has given a carrot to try for those individuals to try to be engaged as an independent contractor if they can. At the same time, as Gene observed, we've seen this inexorable movement towards independent engagement. There's a variety of economic, technological and cultural reasons why work has been moving inexorably toward a contingent engagement model, not for all areas of work, but for many areas of work. And the government and different entities that have observed this phenomenon have noted it. There's a General Accounting Office report that found that the highest level of job satisfaction for any job class in the country was for independent workers. Independent solo opener's independent contractors are one of the largest sources of new business in the United States, and especially in the area of women entrepreneurs. It's one of the areas biggest areas of growing business. So this is a super valuable, important aspect of the economy. And now the playing field has been tilted so that people have a big financial and or a substantial financial incentive to try to take advantage of this new tax law. Entities this week, actually today, one of the things that I'm working on is revising an engagement tool for an entity that engages independent contractors and contingent talent. So I draft policies and documents for buyers and suppliers. In looking at this from the supply from the buyer side, the buyers want to be what Gene refers to as the client of choice. They want to be able to attract and retain the best talent. And if their talent wants to be engaged as independent contractors, it's in the interest of the buyers to try and make it as easy as they can to do where they can. Now, obviously, they have to comply with the law, but where they can kick the ball into the middle of the fairway and make it easier for the talent that they want to engage, the way the talent wants to be engaged, the buyers have incentive to do it. At the same time, the buyers, it's in their interest or should be the contingent talent. It's in their interest to understand what their clients are looking at and try to meet the needs of their clients so that their clients can engage them as independent contractors so they could take advantage of this new tax law. So when I'm going to go through for the next several minutes is. Tool kit items, tool kit, things that enterprise clients that engage talent can do and that independent contractors can do to more safely and more effectively work with each other to take advantage of these new tax laws. And I'm doing this from the perspective of both the buyer and the independent contractor. The solo partner wants to take advantage of this tax law if they can. So I'm going to start with things that buyers and suppliers can do together to make it easier for independent contractors to engage as independent contractors. And I'll start with this observation. A lot of times putative independent contractors are frustrated. They want to be engaged as independent contractors and their clients don't want to engage them as opposed to contractors. I want to talk a little bit about why and help to get over that hump and solve some of the problems that exist. If you're a buyer, I keep saying in different panels and I'm on that some day, I'm going to count, but I would guess there's at least 100 different tests for employee status around the country in my own state, Wisconsin. There's got to be at least a half a dozen. And sometimes they conflict. And it's very common for someone to be an employee under one test, an independent contractor under another. And if you're a buyer and you're engaging tens or hundreds or thousands of independent consultants, you need to come up with a system that scales so that you could safely engage people and comply with all of these different tests at the same time, if you're engaging independent consultants. You're really engaging in a business to business transaction and the procurement industry is the people in large buyers who are engaging with talent. A lot of times the procurement model didn't come out of H.R., it came out of procurement. So the people who are engaging independent consultants are using the same business to business rules for engaging in consultants as they would use for buying widgets or buying toner cartridges. And that's appropriate if you're an independent consultant. You need to understand the mindset of your client. Thereby they're engaging with a business. I'm engaged in a business to business transaction, and they've got rules for qualifying as a vendor to do business with them. That can be frustrating if you're an independent consultant, but you need to understand what those rules are and why they are so you could try to comply with them because they exist for good reason. So one of the rules. And so here's an area where buyers. And independent contractors can work independently, but in the same area to try and grease the skids for independent consultants to work as independent contractors, and I'll give one example of a vendor requirement that's often a sticking point. Many businesses, maybe most businesses, if they're going to work with a vendor in a business to business context. Are going to be going to they're going to have qualifications that the vendor must meet to be required to be a vendor and one common one insurance. If you're going to be a vendor working with us, you have to carry these insurances in these amounts. And that's appropriate if you're an independent consultant and you want to be engaged in a B2B transaction with your client, you're going to get their B2B terms, which are generally going to include a requirement that you carry certain types of insurance. So if I'm speaking to an independent consultant, I'm going to say be prepared for that. If you want to be an independent contractor, that's fair. It's necessary and you should expect it. If I'm advising a buyer what I say in the meeting with a bio buyer client last week is. Actually, look at what you're requiring, the easy thing if you're a buyer. Is to. Come up with a set of insurance that you're going to require five different types of coverage with five different policy limits with with five different ratings for insurers, that you're going to require your vendors to carry and a requirement that you're going to that your vendor, your vendor is going to have you listed as an additional insured and provide certificates of insurance. Those are standard B2B business terms, but the same insurances don't apply to all of your vendors. And if you've got a paragraph 11 in your vendor contract that lists the type of insurance that you want, if you haven't looked at it lately, you should revisit it. And the person or persons that should be telling you, advising you on what insurance is to require with what policy limits are your broker? I'm an attorney. I've been in this field for 29 years.

[00:41:17] Eric Rumbaugh: I'm not qualified to tell a client what type of insurance they should have with what policy limits. That's a broker question. What claims have you been experiencing in this industry? In what amounts? What type of coverage do other people have and not have? What type of coverage juvies that they have with what policy limits? That's where paragraph 11 should come from, in my experience, advising buyers that paragraph 11 is there because it's there in some cases it hasn't been revisited or reviewed by a broker. That's one problem. If you're a buyer, the next problem applies to any consultancies. It's fair and reasonable and necessary that you apply B2B terms to your independent consultants. You shouldn't waive those terms. If you want them to be independent, you want to say to a government agency. You're this person is not our employee, you should treat them like they're a business, and that means having vendor requirements for that business. Well, one of those terms is going to be insurance, but it doesn't have to be the same insurance that you require of all your other vendors, you should tailor the insurance to the job that you're actually doing. Not all the coverages in your off the shelf insurance paragraph are going to apply to an independent consultant. You should work with you. The easiest thing, as I said before, is to have one clause and use it for everybody, but especially in the area of independent consultants, you're going to be requiring them to get insurance that they don't need. So you're going to make it too expensive for them to be independent consultants for you and you are driving away talent. So what I say to the buyers is it is fair, reasonable and necessary for you to apply B2B terms than about a consultant. However, realize that some of those terms are going to create expense for the consultants. That creates an activation point, a hurdle that they have to get over to qualify as a vendor that may not be serving a business purpose for you, other than we don't want to go to the effort of having two different clauses or 10 different clauses on what insurances we're requiring. There's a talent pool. Prices are growing. Look at your B2B terms with the council and evaluate how you might want to moderate them or modify them for the independent consultant pool that you're working with. Again, not giving up your actual business need, but making the terms that you're requiring comport with what actually is necessary for that engagement. And I use insurance as an example because it's the one that comes up most often. But all the vendor requirements should be subject to this type of analysis, at least periodically. I recommend you do it now and do it periodically. And if you're a consultant and you're running into a buzz saw a vendor engagement requirements from your client that don't make sense to you, be patient. They're there for a reason. They may seem arbitrary to you, but if you were on the other side of the table, you don't understand why they're doing it. Another contract term that exists commonly in vendor contracts, which makes complete sense and a lot of contacts. But it may make sense in the context of engaging an independent consultant, but shouldn't be reflexively adopted as some type of restriction on competition. A lot of times in a B2B deal, if you don't have a vendor supplying a particular type of part or type of service to you, you're not going to want that vendor supplying that same part or service to your competitor. At least during the duration of them being a supplier to you, especially if you're going to be giving them unique information for the purpose of doing the job for you, that would help the competitor, that makes complete sense. However, if you're engaging someone who ends up in a contract, they're supposed to be an independent contractor, free to go get other work. In fact, you want them getting other work. It strengthens their case that they're an independent contractor, a non-competition clause in a vendor contract, which might make sense in some context and not in others, has benefit in the context of an icey engagement arrangement. But it also has a cost. It undercuts the person's independent contractor status. So one of the contract terms as a buyer that you can contemplate getting rid of to to strengthen your talents case that there have been a contractor and can take advantage of tax law, think about getting rid of restrictions on competing in your agreement if they're necessary because of technology they're exposing you're exposing the contractor to don't let this tail wag the dog. But it's an important tool kit item that you can use to move to kick the ball into the middle of the fairway and make it easier for your contractor to engage as an independent contractor. Another and this is I didn't say this first, but this is probably the easiest thing that vendors, independent consultants and their clients can do together to strengthen the consultants case that she or he is an independent contractor has to do with expenses. If you are a buyer and you intend to pay a consultant 5000 dollars for a deliverable for 500 hours a day or whatever it is that you're paying for, and you expect the person of a thousand to say you're going to pay 5000 dollars for deliverable and expect the person to have a thousand dollars in expenses, you could pay the 5000 dollars for the deliverable and reimbursed a thousand dollars in expenses. From an icy classification perspective, it's much better that the and this goes to slide this up in front of you in terms of investment facilities. You want the vendor to have expenses for them to strengthen their case that they're independent contractors. So where you can don't reimburse expenses and up your pay rate. Now, if you're a consultant, that means you're going to have some risk. You might get less pay than your expenses, at least in certain time periods. And that may seem bad, but in fact, that's part and parcel of being an independent consultant. Independence, their risk of loss. That's one of the things about being an independent consultant. It's not the most important factor. We'll get to the most important factor in a moment. But it's an important factor. And we want to strengthen your case to you're an independent contractor. Work with your client to not reimburse your expenses and up your pay rate if you're a client or buyer and you want your consultants to be able to be engaged as independent contractors, think about not reimbursing expenses and upping the pay rate and let the consultant bear their own expenses and bear some risk. Same thing with whether you're going to be paid by the job, by the deliverable or by the day or by the hour, the fact that you're paid by the day or by the hour, doesn't make you an employee. I'm an attorney. Attorneys usually, but don't always go by the hour. And we're usually independent contractors, accountants also. Typically, though, by the hour, plumbers typically vote by the hour. Doesn't make them an employee. But it's a factor that makes someone look more like an independent contractor where you can pay by the job if you can adjust your work, in order to pay by the job. Another contract clause that buyers can look at in their contracts, which is a rational clause, I'm not saying that you should get rid of this clause, but I'm saying it should be in play is a no subcontract clause. If you're a government contractor or another contractor, you may have a clause in your contract with your clients that prohibits you from subcontracting so you can't let your independent contractor subcontract. But you evaluate it because if you hire me, for instance, as a lawyer. Typically, if you hire me to write a brief or draft a contract or whatever, you don't care if I personally draft it or if I have a paralegal or an associate or an admin, help me on it. That expense comes out of my pocket and you just care about the deliverable. Telling someone that they personally have to do the work. Minimally, but to some extent undercuts their status as an independent contractor. Think about removing that no subcontract clause if you can, job by job. And again, I'm not against no subcontract clauses. They serve a purpose and they are in some cases required under your contract. Related is where you can. And when I get to things that the vendors, the independent consultants can do to help their clients engage them, I'm going to tell them to have a corporate form. But where you as a buyer in your contract, can go through the contract and eliminate naming the person to do the work. That's a good, simple contract cleanup thing, you really don't want to specify the person who the work you want to specify the entity that's doing the work, not going to get to the most important thing that buyers and independent consultants can do to clean up their relationship, kick the ball into the middle of the fairway and make it safer and easier to engage independent consultants as independent independents and allow them to take advantage of this tax change. And that has to do with control. In some cases, buyers will have work orders or contracts or statements of work that will reserve areas of control that they don't need, don't want, or don't exercise. That doesn't make someone an employee, but it makes them look like an employee. It makes it more difficult to engage them as a contractor. In a lot of cases, the consultant is working very independently. And not only they're not there to get directed, in some cases, the consultants are there to give direction to the client, to give direction to staff within the client or other consultants and actually provide expertise. So a work order, statement of work, contract communication, cleanup to remove indicia of control that you don't need, don't want, don't use is good. And where, in fact, the consultant is being engaged to provide direction, to provide expertise, recite that you're being engaged to tell us how to do X or to advise us on how to do X.. The consultants actually exercising the control, not receiving the control. In a lot of cases. That's the fact they have the document reflect the reality. I'm not saying create a fantasy fantasy document that doesn't reflect the reality so that you can help someone do something. But I am saying is in a lot of cases, the reality is very favorable to ICRA engagement. But the documentation. Doesn't match the reality, so work with if you're a consultant and you have a work order that shows that your client is doing some things or reserves the right to do some things that they've never actually done, you can work with them to modify your work order statement of work, to reflect the reality that shows, in fact, you're the one who's providing the expertise, not receiving the direction. And if you're a buyer, again, you can work on the area of control to clean up documents, to reflect reality, to allow a safer engagement. Now, if you are a consultant, there are some things you can do to make it easier for your clients to engage you as an independent. One is have a corporate form, a single member, LLC, a corporation. Sometimes in this purpose, this tax seminar, Single Member, LLC, is the form that is surviving under the current iteration of IRS rules. Obviously, if that changes, then what I'm saying would change. But get a corporate form. Having a corporate form doesn't make you an independent contractor. It's not irrelevant. It's a very minor factor, but it's a factor. Next, get a tax I.D. number. You, as a consultant, don't want your clients to be paying you with and have reporting based on your Social Security number, you can get a tax, a business tax I.D. number from the federal government and have your clients report your payment to that for most worker classification purposes. That is a minor factor or no factor at all. In some states. It's actually never a dispositive factor, but it's a more important factor in some states than under federal laws. And so what I would say to independent consultants is a simple expedient that you can adopt that will make your engagement a lot safer and a lot easier. It will take the couple of hours it'll take to get a tax I.D. number and use that tax I.D. number for your business. Next, if you're an independent consultant, if you're an independent, you are telling your clients and you're telling the world, I'm in business. Which means you are marketing yourself, you're holding yourself out to the world as being in business, you should be marketing yourself and you should have records that you're marketing yourself. If you have an Internet presence, you should have a LinkedIn profile. You should have business cards. You should be attending conferences. You should be doing things to solicit business from persons and entities other than the client you get your first gig with. Obviously, when you get your first gig, it's your first gig and the first one, Tautologically is going to be your only client when you get it. But you should be holding yourself out to the world as being a business to get other business. And to the extent you can get other clients, every other client you get strengthens your case that you're an independent contractor. So. Actively and actively market yourself to the world. Document it and be able to be able to show that you're marketing yourself to the world, and to the extent that you can get other clients, get other clients and document that you have other clients. Insurance. Insurance it is I said before in my remarks, primarily directed to buyers, that one of the frustrations with the contractors is that buyers will have to follow insurance rules that aren't tailored specifically to independent consultants. And so they might seem procrustean and onerous to independent consultants. What I say to consultancies, it's not unfair or unreasonable for your clients to require you to have insurance and to meet other vendor qualifications. If you were a big buyer and you were buying work from vendors, you would do the same thing. And so you should evaluate what insurance is appropriate for your business and go get it. All right. [00:56:50]

[00:56:51] Emily Stringer: Thank you so much for all of your great tips here, unfortunately, in the interest of time, we are going to cut this back over to Gene and get this wrapped up since we are at 157. However, we greatly appreciate your input. 

[00:57:13] Gene Zaino: Eric, thank you very much. I think the key point here is that making sure you're an independent contractor status is defensible. There are going to be lots of reasons for people to challenge your independent contractor status. Everything we talked about on the tax law is federal tax law. The states may not be in the same position and may be more inclined to want to treat people as employees than independent contractors. And there's you know, like I said earlier, there's over 100 different ways to identify and determine an independent contractor versus an employee. And that little slide with rabbit or duck is really pretty pretty, something you should pay attention to. So like I said earlier when we started this, it's never been more important to get this right, both on an individual basis. You don't want to be set up as an independent contractor and then reclassified as an employee and go pay all kinds of back taxes because you were improperly paying your taxes. So with that, I know, Emily, where we're running late. Let me just quickly say that, you know, one of the things that we're working on here, an embryo, is something called the certified self-employed status, where we are trying to get our legislators to to have a way for an independent contractor or freelancer to kind of raise their hand and say, listen, I know what it takes to be an independent worker. I'm ready to take on the responsibility. I'll do all the right things and I'll have the validation and verification. And if that's the case, give my clients a safe harbor so that they don't have to worry about me being reclassified as their employee. And I don't have to be worried about being reclassified as an employee of my client because I want to be an independent business. So those are things we're working on. You know, it's up on our website if you want to learn more about that. But with that, I know there's one minute left until this call. I'm sure there's questions we will try to follow up on. I don't know, Emily, if you want to take another couple of minutes and see if you want to answer one or two questions. But other than that, I want to thank everybody for their attention and for, you know, understanding and learning more about this pretty interesting new trend. 

[00:59:33] Emily Stringer: Gene, thank you so much. And Eric, thank you as well. These are wonderful tips. Great, great things to know. Going into the new tax law tips tricks to being an independent contractor. We will take about five minutes here to run over and answer a couple of our frequently asked questions, the remainder, which we are not able to. We will get to the email first, though. We are going to launch a quick poll so that we can get some feedback from those who are on the line who would like to learn more about MBO partners. So first and foremost, would you like someone at MBO partners to contact you? And we'll give everyone a few minutes here in terms of voting, so we'll take about 10 more seconds, we are at 55 percent. All right, great, thank you to all who have requested more information and for those who have not that have weighed in on our poll. Now, next, move on to a couple of our frequently asked questions. We have this come up a couple of times. So, Gene, this one would be for you. If I file a joint return as a married person, does my spouse's W-2 income count toward the Section 199A deductible calculation? 

[01:01:04] Gene Zaino: Yes, it does. It's because the 199A is determined by the income from your business as well as your taxable income. And whichever one is lower is the basis for the calculation. So if you're filing jointly and your spouse is earning income, absolutely counts towards the calculation. 

[01:01:32] Emily Stringer: Great. Thank you for that feedback, Gene. And I think that's an excellent reminder for many of our participants who are on the line. Next, do you think enterprises will be more or less excited to engage independent contractors as a result of the new tax laws? Will classification become more difficult? 

[01:01:54] Gene Zaino: One, I think organizations will not have a choice but to need to figure out how to engage this independent workforce, it's only going to be growing more because there is more of an incentive to do it. So and and, you know, the second part of the question, do I think classification and compliance is going to be more difficult? I don't think it's necessarily more difficult. I think it's more important to get right. And and hopefully with, you know, some of the things that, you know, we see coming down the legislative track, they'll be hopefully some more guidance on perhaps a safe harbor and certainly something that we're working towards so that there's less ambiguity on whether someone is an independent contractor or an employee. But it's never been more important to get that right. 

[01:02:47] Emily Stringer: Excellent, Gene, I foresee that coming as well. We very much appreciate you weighing in on that. We'll take two more questions here before we get things wrapped up. So for one, how does one think about determining reasonable compensation if their business requires it? 

[01:03:07] Gene Zaino: Well, that's a very hard question and there's, you know, all kinds of literature in, you know, in tax law, but basically it's whatever you would have to pay to replace yourself. That's what reasonable compensation is. So if you're a consultant billing a couple of hundred thousand dollars a year and that's the only person in your company that's billing, the reasonable compensation is basically what you build. However, if you have something that is a brand or a product necessarily, not necessarily a physical product, but a solution that you would deliver over and over again and you package it up. And like Eric said, you price it on a fixed price basis and you're delivering a solution. And, you know, you could do that and get, you know, millions of dollars coming into your company. Well, then, you know, you could certainly pay somebody to run that for you and pay them, whatever, 150000 dollars, two hundred thousand dollars a year. And then all the rest could be passed through income to you. So there's you know, those are those are difficult, you know, situations that definitely require some, you know, professional expertise, certainly.

[01:04:29] Emily Stringer: Absolutely. And I am very much on the same page with you Gene, that professional expertise is required when you are making those types of decisions. One last question here. In the meantime, before the Blue Book comes out, how should independence be thinking about their quarterly estimated taxes? 

[01:04:50] Gene Zaino: Well, assuming that they are paying quarterly estimated taxes, they should just continue as they are. You know, I think it would be pretty risky to migrate to a different status until there's more clarity. Certainly what we are doing at MBO is making sure that we could pivot one way or the other. We are ready to handle whichever way this goes. We've been working on that for a while. So as soon as we see through the new published regulations, as soon as this blue book comes out, we will then have a very clear position as to what is the right way to handle this under this one, 1990. And we'll be there ready to help people. 

[01:05:41] Emily Stringer: Great. Gene, thank you so much for your feedback and the great answers to the questions from our audience at this time. We're officially five minutes over, so we will get things wrapped up here. Thank you to our audience. Thank you to our speakers. It was wonderful having everyone on the line today. We very much appreciate both the feedback from our speakers and their participation from our audience. We look forward to seeing everyone online in the future and have a wonderful afternoon.