contract-law employment tax-law open-source-software labor-law
How can I classify and pay contributors in my open source project?
<p>I am setting up an "open" source project. The source code is available for educational and personal use and modification but not for selling or redistribution.</p>

<p>In this project, I expect that many individuals will contribute code. The code can measured and a ranking of the top 10 contributors can be generated.</p>

<p>The project will have a revenue through ads. I want to do two things with this revenue:</p>

<ul>
<li>If there are money and the project is making a profit, to split the money proportionally based on the ranking of contributors.</li>
<li>If there are no money, then no pay to anyone.</li>
</ul>

<p>Conceptually, I believe I can give the money I make from ads to anyone I please (after taxes have been paid through 1099). What I don't know is how this transaction (exchange of money) is classified.</p>

<p>Is it a donation? Are the contributors volunteers that may end up getting paid or not? Or are they contractors that do the work with hopes that they may get paid but understanding that this is contingent on ad profits. Have there been historically contractors that did the work but expected pay only when a project succeeded?</p>

<p>There are all sorts of legal perils in what you're describing.  Therefore, you should consult with an employment attorney to ensure that you are compliant with your state's wage-and-hours laws, and to ensure that you have a contract and/or disclaimer in place to reasonably protect you and your entity from claims by contributors.</p>

<p>For tax purposes, in terms of payments you or your entity make to contributors: If the contributors are not employees, then <a href="https://law.stackexchange.com/a/7939/10">any U.S. person or non-incorporated entity to whom you pay more than $600 in a single year must receive from you an IRS Form 1099-MISC</a> listing the payments as "Non-employee compensation."</p>

<p>(If you are running the project personally, it's conceivable that you could "gift" the payments to contributors out of your post-tax income, up to the annual personal gift tax exemption for each contributor.  But I don't think anybody would advise you expose yourself to direct liability by running the project in this fashion if there's any cashflow or intellectual property involved.)</p>
