The IRS has published the following list of factors used by its auditors to analyze whether a worker is an employee or independent contractor:

  1. Instructions – workers who must comply with the business’ instructions as to when, where, and how they work are more likely to be employees than independent contractors.
  2. Training – the more training that the business provides to its workers, the more likely it is that they are employees. The underlying concept is that independent contractors are supposed to know how to do their work and, thus, should not require training from the purchasers of their services.
  3. Integration – workers whose services are integrated into business operations or significantly affect business success are likely to be considered employees.
  4. Services rendered personally – companies that insist on a particular person performing the work assert a degree of control that suggests an employment relationship. In contrast, independent contractors typically are free to assign work to anyone.
  5. Control of assistants – if a company hires, supervises, and pays a worker’s assistants, this control indicates a possible employment relationship. If the worker retains control over hiring, supervising, and paying helpers, this arrangement suggests an independent contractor relationship.
  6. Continuous relationship – A continuous relationship between a company and a worker indicates a possible employment relationship. However, an independent contractor arrangement can involve an ongoing relationship for multiple, sequential projects.
  7. Flexibility of schedule – workers for whom the business establishes set hours of work are more likely employees. In contrast, independent contractors generally can set their own work hours.
  8. Full time required – workers whom the company requires to work or be available full time are likely to be employees as it gives the company control over most of the worker’s time. In contrast, independent contractors can generally work whenever and for whomever they choose.
  9. Need for on-site services – requiring someone to work on company premises, particularly if the work can be performed elsewhere, indicates a possible employment relationship.
  10. Sequence of work – if a company requires work to be performed in a specific order or sequence, this control suggests an employment relationship.
  11. Reports – if the business requires workers to submit regular reports on the status of a project, an employment relationship may be indicated
  12. Payment method – hourly, weekly, or monthly pay schedules are characteristic of employment relationships, unless the payments simply are a convenient way of distributing a lump-sum fee. Payment on commission or project completion is more characteristic of independent contractor relationships.
  13. Expenses – independent contractors typically bear the cost of travel or business expenses, and most contractors set their fees high enough to cover these costs. Direct reimbursement of travel and other business costs by a company suggests an employment relationship.
  14. Tools and materials – workers who use company-provided equipment, tools and materials are more likely employees.
  15. Investment – independent contractors typically invest in and maintain their own work facilities. In contrast, most employees rely on their employer to provide work facilities.
  16. Realization of profit or loss – workers who receive predetermined earnings and have little chance to realize significant profit or loss through their work generally are employees.
  17. Work for multiple companies – workers who simultaneously provide services for several unrelated companies are likely to qualify as independent contractors.
  18. Services available to general public – workers who make their services available to the general public through business cards, advertisements, and other promotional items, are more likely independent contractors.
  19. Right to fire – workers who can be fired at any time are more likely employees. In contrast, your right to terminate an independent contractor is generally limited by specific contractual terms.
  20. Right to quit – workers who can quit at any time without incurring any liability to you are more likely employees. Independent contractors generally cannot walk away in the middle of a project without running the risk of being held financially accountable for their failure to complete the project.

If you have questions, please contact Christopher J. Sena at 516-541-6549 or chrissena@dsjcpa.com.

 

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