What Factors Does the IRS Look at to Determine Independent Contractor Status?
There are many definitions for the term “independent contractor.” Black’s Law Dictionary defines the term “[g]enerally, one, who, in exercise of an independent employment, contracts to do a piece of work according to his own methods and is subject to his employer’s control only as to end product or final result of his work. Black’s Law Dictionary (5th ed. West 1979). This definition, however, doesn’t really say much about how to determine precisely what an independent contractor is. California Labor Code isn’t much help either, since it simply defines the term “independent contractor” as any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished. California Labor Code Section 3353.
Determining whether someone is an independent contractor as opposed to an employee is critical to the business person. Businesses must withhold and pay taxes for employees, while they don’t if an independent contractor is being used. Similarly, many of the rules applicable to employees are not applicable to independent contractors. While there simply is no one definition of an “independent contractor,” you must consider a list of factors that the Internal Revenue Service uses to determine whether or not you are an independent contractor. Generally, one is deemed to be an employee if the worker:
- Must comply with employer’s instructions about the work
- Receives training from or at the direction of the employer
- Provides services that are integrated into the business
- Provides services that must be rendered personally
- Hires, supervises and pays assistants for the employer
- Has a continuing working relationship with the employer
- Must follow set hours of work
- Works full-time for an employer
- Does their work on the employer’s premises
- Must do their work in a sequence set by the employer
- Must submit regular reports to the employer
- Receives payments of regular amounts at set intervals
- Receives payments for business and/or traveling expenses
- Relies on the employer to furnish tools and materials
- Lacks a major investment in facilities used to perform the service
- Does not make a profit or suffer a loss from their services
- Works for only one employer at a time
- Does not offer their services to the general public
- Can be fired by the employer
- May quit work at any time without incurring liability
One must carefully examine each of the foregoing factors, and perhaps more in some circumstances, to determine whether someone is an independent contractor or an employee. Mischaracterizing the relationship can result in the business being responsible for paying the employment taxes due for the mischaracterized employee if the business has no reasonable basis for classifying the worker as an independent contractor.
The determination of whether someone is an independent contractor or employee can be complex and involves consideration of not just the factors described above, but others as well, depending upon the reason for making that determination. To understand the rules and make an informed decision about classifying a worker, you need the services of a knowledgeable attorney. Michael Leonard, Esq. of San Diego Corporate Law is that attorney. To schedule a consultation with Mr. Leonard to discuss whether a particular person is an independent contractor or employee, or to discuss any other business-related matter, you can contact him by e-mail at or by telephone at (858) 483-9200.