Are You an Independent Contractor or Employee?
Over the past couple of years I have noticed a trend where I see employees who think that they are independent contractors and vice versa. In order to [hopefully] prevent further confusion I have compiled the 20 guidelines that the IRS uses to distinguish between an employee and an independent contractor. Regardless of the agreement — written or not — you have worked out with your employer or client these guidelines will determine whether you are classified as an employee or contractor.
Employer Control
- 1. Instructions - An employee is told when and how to work. A contractor is normally given a project and a time line in which to complete the project.
- 2. Order of tasks - An employer usually dictates how, or in what order, a certain job should be completed. Just like number 1, a contractor should be given a project and a time line to complete it.
- 3. Set working time - An employer normally gives a employee a schedule that dictates when they work. An independent contractor usually has the freedom to set their own work schedule.
- 4. Full time - An employee may be required to work, or at least be available, full time. An independent contractor governs their own schedule.
- 5. Work location - An employee will generally work on location or at another location designated by their employer. A contractor usually works off site.
- 6. Reports - Employees are usually required to hand in reports to their employers. If a contractor provides reports it should be done as a courtesy, and not required by contract.
Hiring, Firing, and Work Relationships
- 7. Hiring assistants - A contractor has the ability to hire other contracted help if needed.
- 8. Right to fire - As long as a contractor is providing the expected results as defined in their service contract then they cannot be fired. An employee can pretty much be fired at any time.
- 9. Right to quit - An employee has the right to quit at anytime without consequence. A contractor may be held legally liable if they do not complete the service in which they were contracted for.
- 10. Multiple clients - A contractor has the ability to work for more than one person.
- 11. Services rendered personally - An employee works directly under their employer or company. A contractor *should* work through a properly structured business entity.
- 12. Services offered to the general public - To show that they are not directly under any one client’s control, a contractor should offer their services to the general public.
- 13. Continuous work relationship - An employee will generally have an established and continuous work relationship with their employer. A contractor should enter into a new contract for each service that they render. If the contractor performs repetitive tasks then they should enter into a new contract every 3 months or so!
- 14. Service Integration - Services that are performed by an employee are usually integrated into the company’s line of services that they advertise.
Responsibilities
- 15. Training - An employee is usually provided training by the company. If a contractor requires training then they are usually responsible for it themselves.
- 16. Expenses - An employer will normally pay for an employee’s expenses that are related to work. Contractor are usually responsible for their own expenses.
- 17. Tools, equipment, and other supplies - An employer usually provides and tools, equipment, or other supplies required for an employee to work. A contractor is usually responsible for providing their own.
- 18. Investment - A contractor will usually have a major investment in their place of business. A good example is a small office that is rented or a properly setup home office.
- 19. Profit or loss - A contractor takes the chance of losing money on a job since they are not guaranteed to make a profit.
Payments
- 20. Payment for services - Generally speaking an employee is paid hourly, weekly, or monthly. A contractor is normally paid by the job or on a commission basis as determined by their service contract.
For more information check out the IRS website.
