Employee or Contractor?

The IRS has 20 factors in its test to determine if a worker is an employee or independent contractor. IRS warns that not all factors are considered in each case or given equally weight. The analysis is performed on a case-by-case basis under the circumstances of each particular situation. Most other government agencies adopt the IRS test when determining which classification to apply to a worker. However, 3 factors are weighted more heavily than others. Most people are aware that having a written contract is key to the government agencies classifying a worker as an independent contractor. But it is not uncommon for the government to classify a work as an employee nonetheless, disregarding the independent contractor terminology in the written agreement. There are 5 things you can do in your agreement to increase the chance of upholding the independent contractor status.

  1. Be sure the agreement provides available job      periods for a given project but does not appoint specific hours for work      to be performed. The contractor must set his schedule and the order that      the tasks are completed at each project.
  2. Avoid use of the term “training” – you can      explain contact requirements and expectations but not “train” the worker.
  3. Be clear that the contractor can experience      profit or loss, but that the contract amount is fixed. Be sure the      contractor provides his own tool, equipment and supplies.
  4. Be clear that the contractor has freedom to      decide who does the work (or assists with the work) and where to purchase      supplies and equipment.
  5. Be clear the contractor makes his services      available to the public and is not exclusive to your business.

This will give you the best chance of surviving an audit and having the worker reclassified for worker’s compensation, disability or payroll tax purposes, or other vicarious liabilities to which employer may be responsible.