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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Employee Or Independent Contractor?