On Tuesday we reported on the first 10 steps the IRS uses to determine if an individual is considered an employee or a contract worker. The degree of importance of each factor varies depending on the occupation and the factual context in which the services are performed.
Here are the final 10 considerations to make when deciding employment status:
11. ORAL OR WRITTEN REPORTS:
- An Employee that is required to submit regular or written reports for their services indicates a degree of control
- An Independent Contractor is usually not required to submit regular oral or written reports about the work in progress.
12. PAYMENT BY THE HOUR WEEK OR MONTH:
- An Employee is typically paid by the employer in regular amounts at stated intervals such as by the hour or week.
- An Independent Contractor is normally paid by the job either a negotiated flat rate or upon submission of a bid.
13. PAYMENT OF BUSINESS & TRAVEL EXPENSE:
- An Employer ordinarily pays the worker’s business and/or travel expenses and generally retains the right to regulate the worker’s business activities.
- Independent Contractors normally pay all of their own business and travel expenses without reimbursement.
14. FURNISHING TOOLS & EQUIPMENT:
- Employees are furnished all necessary tools materials and equipment by their employer.
- An Independent Contractor ordinarily provides all of the tools and equipment necessary to complete the job.
15. SIGNIFICANT INVESTMENT:
- An Employee generally has little or no investment in the business. Instead an Employee is economically dependent on the employer.
- True Independent Contractors usually have a substantial financial investment in their independent business.
16. REALIZE PROFIT OR LOSS:
- An Employee often continues to work for the same employer. An Employee does not ordinarily realize a profit or loss in the business month after month or year after year. Rather Employees are paid for services rendered.
- An Independent Contractor is usually hired to do one job and can either realize a profit or suffer a loss limited or indefinite duration and has no expectation of continuing depending on the management of expenses and revenues.
17. WORKING FOR MORE THAN ONE FIRM AT A TIME:
- An Employee ordinarily works for one employer at a time and may be prohibited from joining a competitor.
- An Independent Contractor often works for more than one client or firm at the same time and is not subject to a non-competition rule.
18. MAKING SERVICE AVAILABLE TO THE PUBLIC:
- An Employee does not make his or her services available to the public except through the employer’s company.
- An Independent Contractor may advertise carry business cards hang out a shingle or hold a separate business license.
19. RIGHT TO DISCHARGE WITHOUT LIABILITY:
- An Employee can be discharged at any time without liability on the employer’s part.
- If the work meets the contract terms an Independent Contractor cannot be fired without liability for breach of contract.
20. RIGHT TO QUIT WITHOUT LIABILITY:
- An Employee may quit work at any time without liability on the Employee’s part.
- An Independent Contractor is legally responsible for job completion and on quitting becomes liable for breach of contract.
The twenty factors discussed throughout the past two articles are designed only as a guide and special scrutiny is required in applying the twenty factors.