Whether a worker is an Independent Contractor or must be put on payroll as an employee is a question of facts and circumstances. The primary issue is whether the employer has the right to “direct and control the exact duties and manner in which a worker carries out those duties.” There is no specific law defining a worker’s status, but over the years the IRS has produced a guideline that amounts to a 20 point checklist.
No one point in the test is governing, but some are clearly more important than others. As the test is applied, multiple “yes” answers point toward an employer/employee relationship.
- Does the employer provide instructions about when, where, and how to do the job?
- Does the employer provide training for the worker?
- Does the worker get started with little or no investment?
- Does the company reimburse the worker’s travel or other expenses?
- Is this the worker’s only client?
- Is the worker paid by the hour, week, or month?
- Is the worker insulated from profit and/or loss from his/her services?
- Can the employer terminate the worker?
- May the worker quit work at any time without incurring liability?
- Does the worker have a continuing working relationship with the employer?
- Are the worker’s services integrated with and/or significant to the business?
- Must the services be rendered by the worker personally?
- Does the employer either provide or supervise the worker’s assistants?
- Is the work performed in a sequence set by the employer?
- Is the worker required to submit regular oral or written reports to the employer?
- Does the worker rely on the employer to furnish supplies, tools, and materials?
- Does the worker perform for only one employer at a time?
- Is the worker required to work a set number of hours?
- Does the worker work 40 hours or more per week for the employer?
- Is the work done on the employer’s premises or at a location designated by the employer?
Use these questions to determine if you have an independent contractor or an employee.
You can access IRS information for determining the difference between employees and independent contractors here.