As explained in the
previous story, the key issue in determining whether someone is an independent
contractor or employee is the employer’s right to control over the means and
manner of the work. The IRS has traditionally followed a 20-factor common law
test to assess the control. While the test has been somewhat streamlined in
recent years, it is a useful self-evaluation tool for employers who want to do
a quick check on whether a worker is properly classified, whether for tax,
insurance, wage, or other purposes.
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
If you find yourself out
of compliance with more than a few of the factors, you probably shouldn’t be classifying
a worker as an independent contractor. In general, if you answer “Yes” to all
of the first four questions, you’re likely to be dealing with an independent contractor.
Responding “Yes” to any of questions 5 through 20 could mean your worker is
really an employee.
1. Profit or loss. Can the worker make a
profit or suffer a loss from doing the work? (This should involve real economic
risk—not just the risk of not getting paid.)
2. Investment. Does the worker have an
investment in the equipment and facilities used to do the work? (The greater
the investment, the more likely the person is an independent contractor.)
3. Works for more than
one firm. Does the person work for more than one company at a time? (This tends
to indicate independent contractor status, but isn’t conclusive because
employees can also work for more than one employer.)
4. Services offered to
the general public. Does the worker offer services to the general public? (This tends to
show independent contractor status.)
5. Instructions. Do you have the right to
give the worker instructions about when, where and how to do the work? (This
shows control over the worker.)
6. Training. Do you train the worker
to do the job in a particular way? (Independent contractors are already trained.)
7. Integration. Are the worker’s
services so important that they have become a necessary part of your business? (This
may show the worker is subject to your control.)
8. Services rendered professionally. Must the worker
provide the services personally, as opposed to delegating tasks to someone
else? (This indicates that you are interested in the methods employed, not just
the results.)
9. Hiring assistants. Do you hire, supervise
and pay the worker’s assistants? (Independent contractors are responsible for
their own staff.)
10. Continuing
relationship. Do you and the worker have an ongoing relationship? (Independent contractors
usually work on discrete projects and then move on.)
11. Work hours. Do you set the worker’s
hours? (Independent contractors control their own schedules.)
12. Full-time work. Must the worker spend
all of his or her time on your job? (Independent contractors are free to work
on multiple projects.)
13. Work done on
premises. Must the individual work on your premises, or do you control the
route or location where the work must be performed? (Independent contractors
determine where their work is done.)
14. Sequence. Do you have the right to
determine the order in which services are performed? (This shows control over
the worker.)
15. Reports. Must the worker give you
reports accounting for his or her actions? (This may show lack of
independence.)
16. Pay schedules. Do you pay the worker by
the hour, week or month? (Independent contractors are usually paid by the job
or on commission, although by industry practice, some are paid by the hour.)
17. Expenses. Do you pay the worker’s
business or travel costs? (Business expenses are usually the responsibility of
the independent contractor.)
18. Tools and materials.
Do you
provide the worker with equipment, tools or materials? (Independent contractors
generally supply the materials for the job and use their own tools and
equipment.)
19. Right to fire. Can you fire the worker?
(An independent contractor can’t be fired without subjecting you to the risk of
a breach of contract lawsuit.)
20. Right to quit. Can the worker quit at
any time, without incurring liability? (An independent contractor has a legal
obligation to complete the contract.)