Quickbooks, Bookkeeping and Accounting Blog

Many small businesses (large businesses, too) struggle with the question of whether an individual can be treated as an independent contractor or needs to be treated as an employee. The general rule is that if the employer has the right (whether or not they exercise such right) to control and direct the individual, both with respect to the actual work that is to be done and the details and means of how the work is to be done, then the individual is an employee.

If the general rule alone does not make it clear whether an individual is an employee or an independent contractor, then consider the following twenty factors, which have been developed based on an examination of cases and rulings considering whether an individual is an employee:

  1. INSTRUCTIONS. If the employer has the right to specify when, where and how the individual is to work, then the individual is generally an employee.

  2. TRAINING. If the employer provides training to the worker, then the worker is generally an employee.

  3. INTEGRATION. The more the worker’s services are integrated into the general operations of the business, the more likely it is that the individual is an employee.

  4. SERVICES RENDERED PERSONALLY. If the Services must be performed by the individual, then the assumption is that the employer is interested in the methods used to complete the work, indicating that the worker is an employee and not an independent contractor.

  5. HIRING, SUPERVISING, AND PAYING ASSISTANTS. If the employer hires, supervises and/or pays assistants that report to the individual in question, then that shows control over how the individual completes the work, implying the individual is an employee.  If the individual hires, supervisors and/or pays their own assistants, then that implies the individual is an independent contractor.

  6. CONTINUING RELATIONSHIP. If the worker continually or repeatedly works for the employer, then he or she may be an employee.

  7. SET HOURS OF WORK. When the employer sets the hours of work for the individual, the employer is demonstrating control, which indicates and employer-employee relationship.

  8. FULL TIME REQUIRED. Independent contractors are free to work for as many employers as they choose. Substantially full time work for one employer indicates an employee-employer relationship.

  9. DOING WORK ON EMPLOYER’S PREMISES. Requiring the individual to work at the employer’s office demonstrates control, implying an employee-employer relationship.

  10. ORDER OR SEQUENCE SET. Establishing a set order in which the individual must complete work demonstrates control, indicating the individual might be an employee.

  11. ORAL OR WRITTEN REPORTS. Requiring regular reports indicates a degree of control.

  12. PAYMENT BY HOUR, WEEK, MONTH. Payment by the hour, week, or month indicates an employer-employee relationship. Payment for a specific job or amount of work indicates that the individual is an independent contractor.

  13. PAYMENT OF BUSINESS AND/OR TRAVELING EXPENSES. Reimbursing the individual for business or traveling expenses indicates an employee-employee relationship.

  14. FURNISHING OF TOOLS AND MATERIALS. When the employer provides the necessary tools, materials and other equipment, an employer-employee relationship is indicated.

  15. SIGNIFICANT INVESTMENT. If the worker invests in his or her own office space, that factor tends to indicate that the individual is an independent contractor.

  16. REALIZATION OF PROFIT OR LOSS. If a worker has the opportunity to make a profit and runs the risk of losing money, then the worker is probably an independent contractor.

  17. WORKING FOR MORE THAN ONE FIRM AT A TIME. Individuals that work for multiple employers are likely to be independent contractors.

  18. MAKING SERVICE AVAILABLE TO GENERAL PUBLIC. When an individual offers his or her services to the general public on a regular basis, then he or she is probably an independent contractor.

  19. RIGHT TO DISCHARGE. If an individual cannot be fired, provided their work meets contract specifications, then they are likely to be considered an independent contractor.

  20. RIGHT TO TERMINATE. Employees can terminate their own employment at any time, but independent contractors generally cannot do so until their contracted work is complete without incurring liability.