About six months ago we posted an article about key questions to ask yourself to determine independent contractor status. As more and more companies outsource services, it is important for HR managers to review the arrangements with each service provider prior to their hire to ensure that they are indeed "independent" vs. an employee.
The IRS has identified 20 factors, called the Common Law Test, as a guideline when considering independent contractor status. Five of the factors involve instruction, training, hours of work, expenses and if same services are provided to other companies.
Instruction:
An employee is required to comply with instruction about when, where and how to work. Even if no instructions are given, the control factor is present if the employer has to right to give instructions. Independent Contractors (IC's) determine on their own how they will proceed in accomplishing an assigned task. An IC is under no obligation to comply with instructions as to how to perform an assigned task, only that they accomplish it.
Training:
An employee is trained to perform services in a particular manner. IC's ordinarily use their own methods to accomplish the required task and receive very little or no training from the party which retains their services.
Hours of work:
An employee usually has set hours of work established by an employer. IC's are masters of their own time. They set their own hours of work.
Expenses:
An employee's business and travel expenses are paid for by an employer. Typically, IC's pay their own business and traveling expenses. However, it is customary in certain trades and professions for IC's to bill their clients for disbursements such as travel, photocopying and other incidental expenses. Payment of disbursements, in addition to the fee for services, does not create an employment relationship.
Works for more than one person or company:
While an employee can have more than one job at a time, employers can demand exclusive employment and prohibit an employee from working for another employer. IC's usually offer their services to multiple, unrelated entities at the same time. Having more than one client or customer at a particular time is persuasive evidence of IC status.
The IRS Common Law Test are only guidelines, but do provide an excellent outline when developing an independent contractor agreement or contract.
Buffalo State University has created a yes or no questionnaire involving all 20 factors you may wish to look at. Keeping such a checklist in your independent contractor file might be a good idea.
I have read your article.It was so informative.Such a good article what you have written.Thanks for sharing your information with us.
Seth
Posted by: lucas law center | March 29, 2009 at 07:52 PM
If anyone has a link to retrieve the Buffalo State Univesity yes or no questionnaire developed under the comman law test for Independent Contractors. Please email me @
cole.terry@DOL.gov
Posted by: Terry | June 04, 2009 at 11:11 AM