Employee vs. Independent Contractor, Part II.

The decision whether someone is an employee or an independent contractor is not based on the preferences of the business or worker. Rather, it is based on the degree of control that the business has over the worker. Employees are subject to greater control while independent contractors are subject to less. The three considerations in making the worker classification decision are:

1) Behavioral Control,
2) Financial Control and
3) Type of Relationship.

Historically, the IRS had used 20 factors to determine the extent of control that a business had over a worker. These factors have, more or less, been incorporated into the three types of control listed above. The 20 factors are/were:

1) Is the worker required to comply with instructions?

2) Is the worker required to undergo training?

3) Are the worker's services integrated into the business?

4) Is the worker required to render services personally?

5) Does the worker hire, supervise and pay his own assistants?

6) Is there a continuing relationship?

7) Does the worker set his own hours?

8) Is full time status required?

9) Must the work be done on the employer's premises?

10) Must the worker perform services in an order of sequence set by the employer?

11) Must the worker submit oral or written reports?

12) Is the worker paid by the hour, week, or month; or is he paid a lump sum?

13) Is the worker reimbursed for traveling/business expenses?

14) Does the employer furnish tools and/or materials?

15) Is the worker required to make a significant investment?

16) Is the worker entitled to realize a profit or loss?

17) Is the worker entitled to work at more than one business at a time?

18) Does the worker make his services available to the general public?

19) Does the employer have the right to discharge the worker?

20) Does the worker have the right to terminate the relationship without performing the agreed upon services?

If someone is uncertain as to whether they should be classified as an employee or an independent contractor, they can file a Form SS-8 with the IRS which will make the determination. The Form SS-8 can be found at http://www.irs.gov/pub/irs-pdf/fss8.pdf