Independent Contractors:

The Official IRS Story

How can I determine whether the person working for me is an employee or an independent contractor?

The IRS (as of 10/18/98) provides the following guidance:

To determine whether an individual is an employee or an independent contractor under the common law, the relationship of the worker and the business must be examined. All evidence of control and independence must be considered. Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties as shown below. These relationships are discussed in more detail in Publication 15-A, Employer's Supplemental Tax Guide (Supplement to Circular E, Employer's Tax Guide, Publication 15).

Behavioral control — Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of -

• Instructions the business gives the worker.
• Training the business gives the worker.

Financial control - Facts that show whether the business has a right to control the business aspects of the worker's job include:

• The extent to which the worker has unreimbursed business expenses.
• The extent of the worker's investment.
• The extent to which the worker makes services available to the relevant market.
• How the business pays the worker.
• The extent to which the worker can realize a profit or incur a loss.

Type of relationship - Facts that show the parties' type of relationship include:

• Written contracts describing the relationship the parties intended to create.
• Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay.
• The permanency of the relationship.
• The extent to which services performed by the worker are a key aspect of the regular business of the company.

IRS help - If you want the IRS to determine whether a worker is and employee, file Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with your District Director.

Can I get information from you, rather than from the government?

Yes, just e-mail or phone. See the contact button for more information.

Also see our article:  Independent Contractors

© Copyright 1998 Raymond S. Kulzick. All rights reserved. 981106.