Employee or Independent Contractor? A Primer on U.S. Law - The Microsoft Case
Abstract
In the late eighties and nineties Microsoft’s stock and popularity was soaring. At that time, it was arguably the hottest tech company in history. Microsoft was employing thousands of tech employees and independent contractors to fulfill its business objectives. It was inevitable that Microsoft would be scrutinized for some legal misstep. Hence, the Internal Revenue Service (IRS) started to review Microsoft’s employment records in 1989 and 1990. The IRS wanted to determine if the agency was getting paid the appropriate amount of employer taxes. It would be a problem for Microsoft if the IRS wasn’t getting its fair share of taxes due to Microsoft potentially misclassifying independent contractors. The court determined Microsoft’s independent contractors were employees for withholding and employment tax purposes. Thus, Microsoft would be required to pay withholding taxes and the employer's portion of Federal Insurance Contribution Act (FICA) tax. Vizcaino v. Microsoft Corp., 97 F.3d 1187 (9th Cir. 1996).
