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What determines whether my worker qualifies as an independent contractor?
Miscellaneous Rules Excerpt from the California Employer Advisor
Do-It-Yourself Independent Contractor Test
Mistakenly classifying an employee as an independent contractor can cost you a bundle in fines and penalties. We've created this test based on the 20 factors used by the IRS to determine whether you have enough control over a worker to be an employer. In theory, with a contractor, you should only be concerned with the results of the work, not the way in which it's performed. Though these rules are intended only as a guide-the IRS says the importance of each factor depends on the individual circumstances-they should be helpful in determining whether you wield enough control to show an employer-employee relationship. Although there is discussion in Congress about easing the rules, unless the law changes, if you answer "Yes" to all of the first four questions, you're probably dealing with an independent contractor- "Yes" to any of questions 5 through 20 means your worker is probably an employee.
1. Profit or loss
Can the worker make a profit or suffer a loss as a result of the work,
aside from the money earned from the project? (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 independent
contractor status.)
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 since
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?
5. Instructions
Do you have the right to give the worker instructions about when, where,
and how to 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 workers services so important to your business that they have
become a necessary part of the business? (This may show that the worker
is subject to your control.)
8. Services rendered personally
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, and not just the results.)
9. Hiring assistants
Do you hire, supervise, and pay the workers assistants? (Independent
contractors hire and pay their own staff.)
10. Continuing relationship
Is there an ongoing relationship between the worker and yourself? (A
relationship can be considered ongoing if services are performed frequently,
but irregularly.)
11. Work hours
Do you set the worker's hours? (Independent contractors are masters of
their own time.)
12. Full-time work
Must the worker spend all of his or her time on your job? (Independent
contractors choose when and where they will work.)
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? (Answering no doesn't by
itself mean independent contractor status.)
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 generally paid by the job or on commission, although by industry practice,
some are paid by the hour.)
17. Expenses
Do you pay the workers business or travel costs? (This tends to show
control.)
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. Worker's right to quit
Can the worker quit at any time, without incurring liability? (An independent
contractor has a legal obligation to complete the contract.)
For more information, please refer to the following document (printer-friendly word document)
Important information about independent subcontractors
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Diversified Risk Insurance Brokers
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