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Employee versus independent contractor determination IRS common law rules

This question is a legal minefield. For every rule, there are several exceptions. Each taxation agency has a different set of standards.

This question is literally a legal minefield. For every rule, there are several exceptions. Each taxation agency has a different standard. The following is an old list of questions that is still in certain instances used by The Internal Revenue Service in determining if a worker is an employee rather than an Independent Contractor. Currently, The Service looks more at the nature of the relationship, rather than a hard and fast list of questions. This new development has lent itself to a subjective interpretation of the rules which puts most employers into even a less defense-able position. But the old list can be quite helpful in pointing you into the correct direction.

The overall rule is that if there is any doubt whatsoever, the worker is considered an employee, and the employer is responsible for taking out the applicable employee taxes. The easiest way for the Service to put you out of business is for you to treat your employees like independent contractors. Handling this properly will only cost you in raw tax another eight to ten cents on the dollar.

Many clients make the mistake of thinking that an Independent Contractor Agreement signed by the worker will protect them. Please don't make this mistake. You could have an agreement the size of the old testament, prepared by the most influential law firm in the state, that makes whatever allegations, and says whatever it says. But at the end of the day, The Service probably won't even look at it in making its determination. The Service will look at the nature of the relationship.

All of that being said, here's the old list of 19 questions. If the answer to any one of the questions is yes, it means that under IRS Guidelines, the worker is probably an employee.

1. Is the worker required to comply with instructions about when, where, and how the work is done?
2. Is the worker provided training that would enable him/her to perform a job in a particular manner of method?
3. Are the services provided by the worker an integral part of the business?
4. Must the services be rendered personally?
5. Does the business hire, supervise, or pay assistants to help the worker on the job?
6. Is there a continuing relationship between the worker and the person for whom the services are performed?
7. Does the recipient of the services set the work schedule?
8. Is the worker required to devote his/her full time to the person he/she performs services for?
9. Is the work performed at the place of business of the company or at specific places set by the company?
10. Does the recipient of the services direct the sequence in which the work must be done?
11. Are regular oral or written reports required to be submitted by the worker?
12. Is the method of payment hourly, weekly, or monthly (as opposed to commission or by the job?)
13. Are business and/or traveling expenses expenses reimbursed?
14. Does the company furnish tools and materials used by the worker?
15. Has the worker failed to invest in equipment or facilities used to provide the services?
16. Does the worker perform services exclusively for the company rather than working for a number of companies at the same time?
17. Does the worker in fact make his/her service regularly available to the general public?
18. Is the worker subject to dismissal for reasons other than non-performance of the contract specifications?
19. Can the worker terminate his/her relationship without incurring a liability for failing to complete the job?

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