The IRS has devised a series of tests and guidelines to help measure and compare whether your worker is an employee or independent contractor.
A basic means of determining whether a worker is an employee is to apply the standard of: Every worker who performs services subject to the will and control of the employer, both as to the methods and results of the work (what is to be done and how it is to be done), is an employee. Although a simple test, it is vague and needs an instrument of measurement for clarification.
Independent contractors are those who practice an independent profession, trade or business in which they offer their services to the general public. An individual is treated as an independent contractor if the business that pays for the services only has the right to control or direct the final result of the work and not the means of accomplishing that result.
In order to aid employers in determining whether a worker is an employee beyond the Common Law Test, the IRS has established 24 Factors to consult for further clarification. The following chart is a comparison of the 24 factors based on employee attributes contrasted against those of an independent contractor.
|Must comply with employer’s instructions about when, where, and how to work||Determines place and sequence of work|
|Trained by employer||Train on their own|
|Services are part of business operations||Services may not be related to employer’s services|
|Work done personally||Others can do work if the contract is completed|
|Has assistants hired by employer||Employs own assistants|
|Has continuous relationship with employer||Work by the job|
|Work hours set by employer||Sets own hours|
|Works full-time for one employer||Services offered to the public|
|Work done on employer’s premises or designated site||Generally works off-site|
|Must follow set order of work||Can set own schedule|
|Submits regular reports||Files report when job ends; interim reports possible|
|Paid by the hour or salary||Paid by the job|
|Business and travel expenses paid by employer||Pays own business and travel expenses; part of cost of job|
|Tools and equipment paid by employer||Furnishes own tools and equipment|
|Has no investment in facilities used||Has significant investment in facilities used|
|No profit or loss incurred||Can make a profit or suffer a loss|
|Works for one firm at a time||Works for several companies at one time|
|Services are not generally available||Makes services available to general public|
|Can be fired at any time||Cannot be fired if results satisfy contract|
|Can quit at any time without liability||Must complete job according to contract specifications|
|The firm has filed a W-2 for the worker in the past||Never considered an employee|
|The employer’s and individual’s intent||A contract for the work to be completed|
|Regular payments for work (weekly, monthly)||Payment at completion of the job|
|An unincorporated worker||An incorporated worker|