I have dealt with this law in depth, from every angle, from its inception in 1986 and have a few observations to make about it:

1. The technical issue concerns the tax risk to an employer whether someone functioning as an independent contractor might be reclassified as an employee via an IRS audit that finds that the person is in fact functioning as an employee and not as someone who runs his own business. This risk exists for every business, large or small, that hires contractors. And the rules by which the outcome is determined are positively byzantine and pretty hostile to employers (and to contractors). They are set forth in IRS Revenue Ruling 87-41 and are summarized here (http://www.morebusiness.com/running_your_business/taxtalk/in...). In general, they state that if an employer has the right to control the means and manner by which someone performs his duties, as opposed to being concerned strictly with the result, then the person is functioning as an employee. They also set forth a list of 20 factors that auditors are to use to help to decide the issue, making this legal determination a very detailed facts-and-circumstances determination that can easily turn one way or the other depending on how an auditor chooses to apply a range of detailed factors. In the background, the law also has cases, precedents, administrative decisions and rulings, etc. that boggle the mind in their complexity concerning how the "rules" work. Moreover, the penalties associated with having a group of contractors reclassified as employees can be extreme. The employer must not only pay employment taxes (Social Security, etc.) for all such persons but also associated penalties and interest. The kicker in the case of a major audit covering several years is even worse because, if the employer can no longer locate the persons involved to get them to sign affidavits attesting that they in fact paid income tax on the income received, the employer also gets stuck having to pay the estimated income taxes for each such reclassified person. In practice, this can amount to a penalty that amounts to nearly half of the wage base involved in the dispute.

2. As one might imagine, this is a horrible landscape for companies to try to traverse without something that eliminates or sharply limits the above risks when they deal with contractors. And, to what should be nobody's surprise, such limits have historically existed to enable companies to have some rational means of dealing with the contractor issue. The limits appear in what are called "safe harbor" classifications. This means that a company hiring contractors can know with reasonable certainty that there will be no reclassification of the contractors as employees as long as the company complies with the safe harbor rules. These rules in turn vary from industry to industry but every industry has them. This is how companies hire sales people as contractors, for example, without incurring major risks of tax liabilities.

3. The 1986 law referred to in this article repealed the "safe harbor" provisions for providers of high-tech services. Thus, there was no law passed that said, "You are barred from hiring tech service providers as contractors." Companies can hire such contractors as much as they like. The repeal of the safe harbor for this type of service provider (and for no other) had the practical effect of making such service providers unmarketable to companies that had no interest whatever in taking on major tax risks just to be dealing with contractors as opposed to employees.

4. Just a background note on this repeal. Before the 1986 repeal, it was true that companies throughout Silicon Valley would hire "contractors" who would literally do, e.g., a 3-year stint working full-time at one desk for one supervisor on one project. Whatever else these persons were, they were clearly functioning as employees. They had to report for work at designated times and in a designated place. They took direct orders from supervisors on when, how, and where to perform specific duties throughout the course of a project or series of projects. There was nothing in such relationships remotely resembling a situation of a company dealing with a person who was in his "own business." In essence, what the companies were doing was hiring employees, calling them contractors, and saving the trouble of having to pay them employee benefits and employment taxes for their services. These were clearly abuses, and they prevailed at all sorts of Valley companies (Intel, HP, all the biggies). Thus, by 1986, this was an area ripe for attack. How did this happen in Congress? Well, 1986 was the great bipartisan coming-together for the lowering of individual tax rates in exchange for closing a variety of tax loopholes and tightening of tax requirements. In the midst of this bipartisan compromise, Congress took note of the abuses happening in Silicon Valley and repealed the safe-harbor classifications for high-tech service providers as a means of eliminating what was perceived as an abusive loophole.

5. While the above explains why the tech industry happened to get singled out as it did in 1986, it does not eliminate the fact that this safe-harbor repeal was in fact a highly discriminatory act in that every industry in American had safe-harbor rules available to it so that it could reasonably hire contractors while the tech industry was suddenly left without any such rules at all. Thus, from 1986 forward, tech companies became terrorized at the thought of hiring contractors under any circumstances (by the way, one of the last holdouts, Microsoft, continued to use large numbers of contractors and got slammed for this in major rulings that came out by the early 1990s, if I recall, though that case involved much more than tax issues).

6. Almost instantly from 1986 and on, a cottage industry sprang up of "placement agents" who would, in effect, assume the employee risk by hiring the tech-service providers directly and, in turn, contracting with companies to place them there as contractors. This worked for the tech companies because, from their perspective, they simply signed a contractor agreement with the placement firm and paid for the work as contract work. The placement firm, for its part, would then hire the tech-service providers mostly as W-2 employees and occasionally (if they were adventuresome) as contractors. If they retained individuals as contractors, though, they ran the risk of having those persons reclassified as employees and so faced the risk at their level that the tech companies once had directly. Because of this risk, most placement firms would not take on tech people as contractors unless they could have what they perceived as a strong case of calling them true contractors. The practical result of this was that, if a tech-service provider wanted to hire on to a placement firm as a contractor, he would first have to incorporate himself and then the placement firm would take on his company. The irony here is that the tax regulations behind the 1986 repeal specifically provided that it was irrelevant whether or not a sole contractor had incorporated himself and that this fact was to be disregarded in making the tax determination. Thus, though the fact of incorporation was technically irrelevant, most placement firms were happy to take people on as contractors once they had become incorporated. Go figure. (This article, by the way, discusses how the IRS would target such incorporated individuals in search of audit opportunities).

7. After 1986, it became virtually impossible for a tech service provider to hire himself out directly to a company as a contractor. Every one of the large Valley companies adopted strict rules forbidding this. In rare cases, someone might get through the rules if the person was incorporated but even then most times the answer from the company was no. Companies simply re-did their hiring practices and thereafter took on contractors pretty much strictly through placement firms and no longer directly.

8. For a tech service provider looking to go into business, this essentially put up an impregnable practical wall to finding reasonable opportunities to work independently in the tech world, at least in terms of providing services to the larger companies. This remains the case today as well, since the law has not changed in the decade following publication of this article.

9. By the way, this is not just a "big company" issue. Even little businesses can get into trouble without the benefit of safe-harbor protections. If you as a founder hire an early-stage contractor (which is often done) and later terminate the relationship, that person can go file for unemployment on the theory that he was in fact an employee of your company and had functioned as such. This in turn can easily trigger an audit of your entire company's history in this area (1099s you have issued are an easy way for the auditors to focus on key areas). Should this happen to you, you find yourself going down a rabbit hole that is likely to be unpleasant. (An aside: one reason to incorporate as a startup is that reclassification penalties/taxes apply only to the entity and not to the founders directly).

10. To sum up, then: there is no law forbidding tech people from offering their services as independent contractors but such persons face serious practical barriers in building a service business because employers will not hire them as contractors for fear of having their status reclassified in a later audit. This is pure discrimination against tech people. No one else is burdened in this particular way in wanting to set up a service business. The fix is an easy one for Congress to make but I have seen no movement on this whatever. For the near future, I am afraid tech service providers are stuck and have no real remedy for this problem.

As the author describes, one reason technical people don't dress well is because they never learned how. Another reason is that techies are unconventional and don't place a high priority on mainstream standards. That being said, I've been fashion hacking for half a year now and the results have been great. Here's some concrete advice based on my experience. Note that I'm 20; people who have been professionals for 15 years and have kids probably dress differently. I'm also average height and average weight, so you'll have to make adjustments if you are tall/short/whatever.

Tshirts. Fitted solid color shirt with jeans that fit and shoes that impress = coffee shop, homework at the library, class. Easy as pie, and if you get the fit right and are in decent shape you look good.

Casual collared shirts. For general wear get bright, solid color fitted ones. Bar, restaurant, class, whatever. It's a very flexible look because you can switch in/out jeans and slacks. Express's 1MX shirts are a solid choice (http://bit.ly/cXBvxS) and very popular for this type of role.

Collared shirts for your suit. Go to a tailor. Get measured. Go to a store that sells suites like Men's Warehouse. Get two white shirts, a powder blue shirt, and a light gray shirt and you are done. Don't complicate things with strips or harder colors if you are just starting. If you want to add personality to your shirt you can do it with a tie You're going for these kinds of looks: http://bit.ly/bwI7zG, http://bit.ly/16mDVK, and http://bit.ly/97P8ld.

Hoodies. Buy two solid color ones, one navy and one grey. No branding, no weird details, no nothing. Solid color only. You can't really improve your look with hoodies, but you can really mess it up by buying one that isn't a solid color. Example (from JCrew): http://bit.ly/bcG2uB.

Graphic Tees. These are hard. You have to be younger to pull off a graphic tee and even then the single to noise ratio in terms of nice/ugly graphic tees is really high. You're probably better off avoiding them

Polos. it's very tough to find ones that fit well. I've had decent success with the custom fit from Raulph Lauren (http://bit.ly/clGtz5). But please, don't buy a polo with a huge logo on the front. Examples: This one from Raulph Lauren (http://bit.ly/arvbbg) and this one from Express (http://bit.ly/9VX3oB) are both BAD choices. A big logo just doesn't look good, and it makes it seem like you are brand dropping.

Something for parties. Something that's a little different. Do not buy this until you are ready. Go with your graphic tee or a regular collared shirt until you are confident enough to pick something cool. Example (from Express): http://bit.ly/9AOupm.

Jeans. Don't get designer jeans. Don't get them torn. Don't get them baggy. Regular or slim fit only. Get them in colors ranging from dark blue to blue/gray. Do not get light blue. Do not get jeans that are too long. They should never, never touch the ground and they should cover 1/4 to 1/2 of your shoe laces when you are standing.

Casual Shoes. Women notice shoes. Seriously. It's really interesting how much they look at your shoes. You can have everything else right, but if your shoes are big blocky white gym shoes, you have failed. I say this as someone who bought big blocky white gym shoes from freshman year in high school to sophomore year in college. The good news is that you can crowd source style selection by looking at Zappos's most popular (http://bit.ly/bep8vN). Once you have the style selection, just make sure you get a decent color. I own a pair of these (http://www.zappos.com/multiview/126799/14074).

Boots. Get something that looks good but does what it is supposed to do (stand up to the elements). I've had a good experience with Red Wing. The company used to make the shoes for the US Army during WWI and WWII, so they make a quality, durable product. I own a pair of these (http://www.amazon.com/Red-Wing-Shoes-Gentleman-Traveler/dp/B...) and they are awesome (but really expensive :-/ ). I've used them constantly in the snow and hold up great, plus they look good too.

Coat. You should get a wool pea coat. You should stop wearing your Northface that is the side of a small tent. Example (from J Crew): http://bit.ly/cVNqg2. Peat coats are a proven style that have been around forever. A nice coat is a really expensive investment and you don't want to buy one that will look bad when your style changes as you get older.

Sunglasses. Authentic aviators that have frames that fit your face. Done. Like the pea coat, aviators have been around for a long time and there are only a few people who truly don't look good in them.

Also, a few general tips:

Fit is the key to everything. It doesn't matter how much you spend on clothing or how well you match your colors. You will not look good if your clothes don't fit. Period. Everything you get should be slim fitting. Odds are 10 to 1 that the jeans you are wearing right now are far too baggy. Loose clothing was one of my most difficult habits to break.

Do not accept anything less than exactly what you want. Settling for clothing is the worst thing you can do. The legs on the pants you just bought half an inch too long? Return them. The collar of the shirt a little too tight? Return it. There are billions of styles and billions of fits out there. Taking a shortcut to save some time is not the road to success. You have to keep searching until you find a fit and a brand that you really, really like.

Focus first on making choices that don't look bad. It's actually really difficult to develop this skill. Once you can consistently make choices that aren't bad, you can start being more risky and shoot for things that look good.

--- Yesh, that turned out to be longer than expected. It was kind of a brain dump, so I apologize if there are parts that don't make sense.

EDIT: One more thing. The first rule of fight club is you don't talk about fight club. Wearing nice clothes is something you do, but it's not something you brag about. Your clothes and brands don't define you and they don't change who you are. The only things clothes do is get in the way (if they are bad) or complement what you already have (if they are good). It's like being rude or polite in a conversation; it doesn't change the content of the conversation, but things can be really ugly or really pleasant depending on the choices you make.

For those who didn't read all the way down, this law was passed in order to pass a tax cut on overseas operations that IBM was lobbying for. PAYGO rules and all that.

Your congress at work -- raise taxes on the little guy in order to give tax breaks to the wealthiest.

I know this is really long and people <sigh> when they see long paragraphs of text... but I just wanted to say the above is REALLY work the read if this situation applies to you.