|
Test of Independent Contractor Relationship |
| |
It is difficult to provide a clear definition for independent contractor
that is sufficiently specific, and at the same time comprehensive enough to
apply to all situations. For this reason, it is helpful to understand the
various factors considered by the Internal Revenue Service (IRS) to determine
whether a worker qualifies as an independent contractor or as an employee. It
should be kept in mind, however, that the presence of one or more of such
factors is not necessarily conclusive, all of the factors must be taken into
account. - Continuing relationships
Employees
usually are hired for a continuing, indefinite period. This generally
applies even to work performed on an irregular but recurring basis, as
well as to part-time, temporary, and seasonal work. An independent
contractor works by the job.
- Full-time work required
An
employee may be required to work or be available full time. This
indicates control by the employer. An independent contractor can work
when and for whom he or she chooses.
- Furnishing of tools and materials
As
a general rule, employees use the means provided by the employer, while
independent contractors furnish the labor and means for performing
their own work.
- Hiring, supervising, and paying worker's assistants
An
employee works for an employer who hires, supervises, and pays workers.
An independent contractor can hire, supervise, and pay assistants under
a contract that requires him or her to provide materials and labor and
to be responsible only for the results.
- Integration of worker's service into employer's business operations
An
employee's services are usually integrated into the business operations
because the services are important to the success or continuation of
the company. This indicates that the employee is subject to direction
and control.
- Investment
Work
performed on the employer's premises is indicative of an employment
relationship, an employee has no investment in the facilities used. An
independent contractor has a significant investment in the facilities
used in performing service for someone else.
- Making services available to the general public
An
employee's services are customarily not available to the public.
Individuals who make their services available to the public on a
regular and consistent basis are independent contractors.
- Payment by hour, week or month
Independent
contractor relationship is generally indicated where: (1) the person
performs work for a lump sum; (2) payment is calculated according to
quantity of work performed; or (3) compensation is based upon the
amount to be disbursed in order to perform the work. On the other hand,
compensation based upon time taken by a person to perform the work
tends to prove a regular employment relationship.
- Payment of business expenses and/or travel expenses
Payment
of mileage or other similar compensation may be used to prove the
existence of an employment relationship. An employee's expenses are
generally paid by an employer. This shows that the employee is subject
to regulation and control. An independent contractor pays their own
expenses, part of the cost of the job.
- Realization of profit or loss
An employee does not incur a profit or a loss. An independent contractor can make a profit or suffer a loss.
- Require oral or written reports
An
employee can be required to submit reports to an employer, indicating a
degree of control. An independent contractor usually files reports when
the job ends. -
Required compliance with employer's instructions
If
one has the right to control or direct the means and the manner of
accomplishment of the work, a relationship exists between one and the
worker, and the worker must be classified as an employee. An
independent contractor relationship exists where the contractor is
subject to the control of the employer only as to the results. -
Right of employer to discharge
An
employee can be fired by an employer. Independent contractors cannot be
fired as long as they perform in accordance with their contract
specifications. -
Right of worker to terminate
An
employee can quit his or her job at any time without incurring
liability. An independent contractor is responsible for the
satisfactory completion of a specific job or might be liable for a
breach of contract. -
Services required to be rendered personally
An
employee renders services personally. This shows that the employer is
interested in the methods as well as the results. An independent
contractor can substitute another's services without the employer's
knowledge. -
Set hours of work
A
requirement that individuals adhere to certain work hours indicates an
employee. An independent contractor generally can set his or her own
work hours. -
Set order or sequence of work
An
employee may be required to perform work in a certain order or
sequence. This shows that they are subject to direction and control. An
independent contractor sets his or her own schedule. - Training of worker by employer
Requiring
that an individual be trained through such methods as working with an
experienced employee or attending training courses, is indicative of
employee status because it shows that the employer wants to control the
way the work is done or the method used. Independent contractors use
their own methods and receive no training from the purchases of their
services.
- Working for more than one firm or company at a time
A
worker who performs services for more than one person may be an
employee of each of the persons, particularly where such persons are
part of the same service arrangement. An independent contractor
provides service to two or more unrelated persons or firms at the same
time.
- Working on the employer's premises
Work
performed on the employer's premises is indicative of an employee
relationship. Conversely, if the work is performed on the contractor's
premises, it indicates an independent contractor relationship.
Last updated: March 7, 2011 |
