How to Determine if You Are an Employee or an Independent Contractor
Generally, the most important element in deciding whether a person is your employee or an independent contractor is control. In other words, if you have control over how the person does their job and what they produce, they are your employee. The Internal Revenue Service (IRS) has created a 20-factor test for determining is sufficient control exists in order to classify the person that you have hired as an employee.
Continuing Relationship - employee's relationship with the company is ongoing, contractor may never work with the same employer twice
Set Hours of Work - independent contractors make their own schedules
Full-time Work - employees generally work full time
Work Done on Employer's Premises - employees work on site
Order or Sequence of Work to be Done Set by Employer - independent contractors can decide how work is done as long as it is finished according to the contract
Oral or Written Reports - a person who must report to their employer on a regular basis is an employee
Payments - employees are paid biweekly or monthly, contractors are paid by the job
Expenses - employees business expenses are often covered by the company
Tools and Materials - independent contractors will usually provide their own tools and material
Investments - independent contractors make personal investments in equipment, advertising, etc.
Profit or Loss - an employee's work will not generally change their pay, while an independent contractor's might
Works for More than One Person or Firm - this is a good indicator that someone is not an employee
Services Available to the General Public - an independent contractor makes his services available
Right to Fire - independent contractors cannot generally be fired unless they have not performed up to the standards of the contract, while employees can be fired if for whatever reason
Right to Quit - an employee can quit at any time, while an independent contractor is legally obligated to finish the work agreed upon
Should I Contact an Attorney?
The consequences for misclassifying one of your employees can be quite severe. An attorney with employment experience can assist you in reviewing these factors and making sure that you are paying the proper taxes for your employees and reporting payments made to any independent contractors you hire.
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