Using SS-8 as a self-audit for employers

There are many government forms that I look at to understand their real use. The SS-4, for example, is a form to allow an individual, company or corporation (or their appointed attorney or representative) to apply for an employment identification number (EIN or Tax ID). The information on the form is used by government officials to go through the EIN program in their system to obtain the EIN. If you have ever called the IRS to get your EIN, you will probably notice that the questions they ask you go along with their system to allow them to file your application. In addition to the EIN, the answers you provide will assist them in classifying your company in the appropriate category for tax and census purposes.

What the SS-4 is to the EIN, the SS-8 form is to the determination of a worker’s status. As discussed in Employee or Independent Contractor? – That is the question, the IRS uses a 20-factor common law test to determine whether or not a worker is an employee. When the status of a worker is in question, the IRS may request the employer/worker to complete an SS-8 to confirm his status as an independent contractor or demonstrate that the worker is in fact an employee.

Some employers use this form as an internal audit to make sure their employers and independent contractors are properly identified and taxed, as well as to identify their responsibility and liability to their different workers.

After requesting basic information (name and information on the employer and worker), the form presents questions formulated around the 20-factor test to help determine the worker’s status as an employee or independent contractor.

Below you will find some of the questions taken from the SS-8 form and how they are used to determine employee or independent contractor status.

 PART I, Question 4

Usually, when a worker obtains their job by bidding for the contract, they are independent contractors.

PART I, Question 9

When you are asked to explain why you believe that a worker is an employee or an independent contractor, you should be able to provide a reason that incorporates one of the factors that the IRS deems part of its common law test. Using one or more of the factors will help guide your answer. If you have trouble supporting your claim that your worker is an independent contractor, chances are, they are an employee.

PART II, Question 1

If specific training or detailed instruction was provided to the worker (how, what, and where to work) he is probably an employee.

PART II, Question 6

If the worker’s daily routine is repetitive and determined by the employer, then he is probably an employee.

PART II, Question 10

If assistants/helpers are hired by the employer, then the worker is probably an employee. Independent contractors usually hire their own apprentices/assistants.

PART III, Question 1

If the firm provides a majority or all of the supplies, equipment, materials or other work-related property, then the worker is probably an employee.

PART IV, Question 2

If the worker can be terminated or terminates his employment without liability or penalty (i.e. breach of contract) then he is probably an employee.

When using the SS-8 form to assist with an internal audit, understanding the 20 factors that the IRS uses is necessary in order to understand how the answers indicate whether or not the worker is an employee or not. These factors can be found at Employee or Independent Contractor?– That is the question.

To understand the consequences of misclassifying a worker as an independent contractor, you can also refer to Can my servers and bartenders be independent contractors?