Re: Question about subcontracting

There are a variety of concerns to be aware of with subcontracting, but none
that pose great problems if considered and adressed:

1.   Ownership of intellectual property used/incorporated into site by sub -
As Ivan Hoffman points out, you need to have an agreement that you (and your
customer) will own (or at least have perpetual royalty free rights to use)
any intellectual property created by the sub and incorporated into the site
in question.  You also should get a representation that the sub will not
incorporate property of others, or, if the sub is not the creator, but
rather uses work of others that he has the right to grant you and your
customer the right to use it.

2.  Status as employee/independant contractor - This is a "classification
issue " that exist for both federal tax purposes ( see
http://www.irs.ustreas.gov/bus_info/training.html  )
as well as for state tax, worker's comp, unemployment and a host of other
regulatory purposes.   If you treat the sub as an independent contractor,
the IRS or state authorities may later contend that the sub was in fact an
employee and that you should have paid other taxes, fees and provided other
benefits to the employee. The rules for the state level test may vary from
state to state, so you need to check for the state(s) in which you operate.
You also need to be careful to avoid (as the much publicized "Microsoft
employee stock case is about) people you thought were subcontractors latter
coming back alleging they were employees and seeking retroactive benefit
plan coverage.   In fact, there are organized plaintiffs attorneys who look
to see which companies have big run ups in stock values, then they seek out
a "class of plaintiffs" (people who they believe have a case to establish
that they were employees, not subs) and seek to recover damages (in exchange
for a 30% to 50% contingency fee)

Bob Webb
bobwebb2(at)webbcounsel.com

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