here is what the IRS looks at to determin employee vs IC

Posted on: January 5, 2017 at 14:15:40 CT

I deleted some that didn't apply to our business.

In addition, the IRS applies 20 factors to the common law test to determine whether back taxes are owed. These factors help the IRS determine whether a worker is an employee or independent contractor under the common law rule. Some of the more important rules are summarized below:
* Rule 1: The worker complies with another person's instructions as to when, where and how he works, indicating employee status.
* Rule 2: Training suggests that the person receiving the services wants them performed in a particular way, indicating employee status.
* Rule 3: Integration of worker's services into business operations suggests that a worker is subject to direction and control, indicating employee status.
* Rule 4: If services are rendered by a worker, it's assumed that the worker is interested in the results and methods to accomplish the task, indicating employee status.
* Rule 5: If a person receiving services hires, supervises and pays assistants, he has control over the workers on the job, indicating employee status.
But if a worker hires, supervises and pays assistants under a contract in which he is obligated to provide materials and labor and is responsible for the results of the work, then this suggests independent contractor status.
* Rule 6: The existence of a continuing relationship indicates employee status. Continuing relationships may exist even if work is performed at irregular, but frequent, intervals.
* Rule 7: The person receiving services establishes hours of work for the worker, indicating employee status.
* Rule 9: If work is performed on the premises, any control over the work indicates employee status.
* Rule 12: Payment by hourly, weekly or monthly wage indicates employee status. Payment per job or on straight commission indicates independent contractor status.
* Rule 14: A person receiving services furnishes tools, materials or equipment, indicates employee status.
* Rule 16: A worker seeing a profit or loss resulting from services--other than profit or loss ordinarily realized by an employee--is considered an independent contractor.
* Rule 17: If a worker performs services for several unrelated firms at the same time, he is considered an independent contractor.
* Rule 20: A worker who can terminate his relationship with the employer at any time, without incurring liability, indicates employee status.
Determining whether a worker is an employee or an independent contractor is based on balancing all relevant factors.
However, certain factors carry more weight by the IRS and the courts, namely:
* factors related to the worker's investment in facilities and opportunity for profit and loss
* the right to discharge the integration of the services into the service recipient's regular business
* the permanency of the relationship
* the method and form of compensation for services performed.
Many of the 20 rules deal with control over the worker by the service recipient. But how much control is too much? This question is critical. The more control, the more likely the worker will be considered an employee.
In my practice, this control issue is key. For example, all of our physical therapy assistants are employees because several of the 20 factors apply.