From Business in Savannah, Wade Herrring of Hunter Maclean writes about the tests used by the IRS and Department of Labor to evaluate whether a worker is an employee or independent contractor. He writes:
The IRS and the Department of Labor have separate, but similar, tests for determining whether a worker is an employee or an independent contractor. The IRS applies a “right to control” test that examines three key considerations in the relationship:
1. Behavioral: Who controls what the worker does and how the work is performed?
2. Financial: Does the employer control fiscal considerations such as reimbursing expenses and providing tools and supplies?
3. Type of Relationship: Is the working relationship controlled by written contracts? Are benefits provided and will the relationship continue long-term? Caveat: a written contract designating the relationship as an independent contractor will not overrule the economic realities of the relationship.
If these questions still leave doubts as to the nature of the worker’s status, the business in question can submit form SS-8 to the IRS to receive an official determination.
The Department of Labor, on the other hand, uses six factors to determine a worker’s status:
1. The extent to which the work performed is an integral part of the employer’s business.
2. Whether the worker exercises managerial skills, and whether this affects his or her opportunity for profit and loss.
3. The relative investments in facilities and equipment by the worker and the employer.
4. The worker’s skill and initiative.
5. The permanency of the worker’s relationship with the employer.
6. The nature and degree of control by the employer.
For a good (but not infallible) rule of thumb, look at how closely the worker is controlled and how predictable the work is. One hypothetical to consider: “Does the worker more closely resemble an office clerk who comes to the office on a predictable schedule regardless of how much work is to be done that day, or a plumber, whom one calls and asks to do a specific job when the need arises?”
Read the full story at WADE HERRING: Employee or independent contractor? The basics for business owners