Worker classification determinations are made on a case by case basis, depending on the specific facts and circumstances.

Generally, an Employee is defined as an individual who performs services for a firm. He/she is subject to the control of the firm regarding what will be done AND how it will be done.

An Independent Contractor is also an individual who performs services for a firm. However, the firm controls only the result of the work and might have to issue a 1099 MISC to report the payment.

Categories of Evidence: behavioral & financial control and relationship of the parties.

Behavioral control: the key fact to consider is whether the business retains the RIGHT to control the worker regardless of whether the business actually exercises that right. Attention given to:

  • Type of instruction provided
  • Degree of instruction
  • Evaluation systems
  • Training provided by the business

Financial control

  • Significant investment
  • Unreimbursed expenses
  • Opportunity for profit or loss
  • Services available to the market
  • Method of payment

Relationship of the parties

  • Is there a written contract?
  • Are employee-type benefits provided?
  • Is there permanency of the relationship?
  • Are services provided a key activity of the business?

If you are not sure you can file form SS-8 with the IRS

I created this blog to help understand certain basic aspects of U.S. tax law. Of course, each situation is unique and nothing that is on this site will ever replace the expert advice of a tax professional.

Please do not hesitate to contact me should you have any question