Employee Or Independent Contractor?

It’s Not Always Easy to Know the Difference.

The IRS has devised a series of tests and guidelines to help measure and compare whether your worker is an employee or independent contractor.

Common Law Employees

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

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.

24 Factor Test

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.

Employee

Independent Contractor

  • Must comply with employer’s instructions about when, where, and how to work
  • Trained by employer
  • Services are part of business operations
  • Work done personally
  • Has assistants hired by employer
  • Has continuous relationship with employer
  • Work hours set by employer
  • Works full-time for one employer
  • Work done on employer’s premises or designated site
  • Must follow set order of work
  • Submits regular reports
  • Paid by the hour or salary
  • Business and travel expenses paid by employer
  • Tools and equipment paid by employer
  • Has no investment in facilities used
  • No profit or loss incurred
  • Works for one firm at a time
  • Services are not generally available
  • Can be fired at any time
  • Can quit at any time without liability
  • The firm has filed a W-2 for the worker in the past
  • The employer’s and individual’s intent
  • Regular payments for work (weekly, monthly)
  • An unincorporated worker
  • Determines place and sequence of work
  • Train on their own
  • Services may not be related to employer’s services
  • Others can do work if the contract is completed
  • Employs own assistants
  • Work by the job
  • Sets own hours
  • Services offered to the public
  • Generally works off-site
  • Can set own schedule
  • Files report when job ends; interim reports possible
  • Paid by the job
  • Pays own business and travel expenses; part of cost of job
  • Furnishes own tools and equipment
  • Has significant investment in facilities used
  • Can make a profit or suffer a loss
  • Works for several companies at one time
  • Makes services available to general public
  • Cannot be fired if results satisfy contract
  • Must complete job according to contract specifications
  • Never considered an employee
  • A contract for the work to be completed
  • Payment at completion of the job
  • An incorporated worker

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