Employees vs Independent Contractors

One of the biggest problems business owners face today is the classification of workers as independent contractors or employees. The problem is complicated by the fact that the rules are somewhat contradictory and determinations can be subjective in some cases.

While a few professions and occupations are held to be employees (or not employees) by specific statute or ruling, the vast majority of employees fall under the "common law" definition of employment. The IRS uses a 20-factor test in determining whether someone is an employee under common law:

  1. Do you provide instructions on how/when to do the job?
  2. Do you provide training for the worker to do the job?
  3. Is the job performed by the worker an integral part of your business' profitability or operation?
  4. Must the worker render the services personally to you?
  5. Is the worker free to hire his/her own assistants if needed?
  6. Is your relationship with the worker a continuing one, rather than one that will terminate at the completion of a job?
  7. Do you specify the hours/days that the worker must be there?
  8. Is the worker required to be available to you full-time, regardless of the work load?
  9. Do you provide a place where the work is to be performed?
  10. Do you set the sequence or order in which tasks must be performed?
  11. Do you, or could you, require the worker to submit reports of job progress?
  12. Do you pay the worker by the hour, day or week, as opposed to by the job?
  13. Do you pay or reimburse in full all of the expenses required to do the job?
  14. Do you provide most of the equipment, tools and supplies needed for the worker to do the job?
  15. Does the worker have a significant financial investment in what is necessary to do the job?
  16. Is it reasonable that the worker could realize a loss instead of a profit on accepting a job from you?
  17. Does the worker work for someone else other than you on an ongoing basis?
  18. Does the worker hold him/herself out to perform similar work for other businesses or individuals?
  19. Do you have the right to fire the worker at will?
  20. Can the worker quit at will, without having any contractual obligations to you?
In GENERAL, answering YES to #1-14, and NO to 15-20 would indicate that the relationship resembles that of employer-employee. However, the test is largely subjective, and there is no "magic number" of yes or no answers that will result in a definite determination. However, the more questions that conclude you have *control* over the employee, the more likely you will be considered the employer.

The IRS can provide you with a Form SS-8 to be used for a definite determination if you (or your worker) is an employee.

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