When is an independent contractor an employee

Routes to finance

An independent contractor is a person or company that provides services, produces results, or produces products for a company under a written or implied agreement or contract. The independent contractor is not under the control or direction of the principal except as specified in a contract.

The independent contractor decides on the provision of the contractually agreed services and negotiates deadlines and results.

The expected outcome of the contract can be as specific as two 250-page books or as loose as general help and training help to transform the organization into a team-based workspace.

While the company hired for its services can determine the results and the end products, it cannot tell the contractor how, when or where to do the work. The independent contractor determines his working hours, place of work and equipment.

The independent contractor provides the commissioned services independently, not as an employee. The client does not control whether the contractor subcontracts part or all of the work.

The independent entrepreneur pays his own taxes and social security. Contractors process their own relationship with the Internal Revenue Service (IRS) using the appropriate forms and procedures.

Most contracts state that the contractor is not an employee and therefore does not receive any benefits, perks or privileges that the employer could provide to employees, including health insurance. 401 (k) deposits, corporate events, or pet insurance.

Employers rarely offer independent office space. Usually they provide a conference room for training, consultations and meetings. You can offer a company email address to facilitate communication between your employees and the contractor.

The company hiring an independent contractor shall not be liable for any acts or omissions of the independent contractor.

Another check of the status of an independent contractor is whether they work for more than one company. the independent contractor should.

Internal Revenue Service (IRS) guidance

According to the Internal Revenue Service (IRS): "The general rule is that a person is an independent contractor when the payer has the right to direct or direct only the outcome of the control. Work and not what is done and how it is done. "

Factors that demonstrate the level of control and independence of the contractor can be divided into three categories.

  • " Behavior: Does the company control or does it have the right to control what the worker does and how the worker does his job?
  • " Financially: Business aspects of the work of the employee carried out by the client (this includes things like paying the employee, reimbursing expenses, providing tools / accessories, etc.)
  • " Relationship type: Are there written contracts or employee benefits (e.g., retirement fund, health insurance, vacation days, etc.) Will the relationship continue and is work a key aspect of the business? "

If an employer can adequately answer these questions, the relationship with the independent contractor is not an employment relationship.

Rather, there is a contractual agreement.

Employers must weigh all of these factors in deciding whether a contractor is an employee or an independent contractor. There can be elements from anyone in the work that the contractor is doing. There are no hard and fast rules when a person is considered a contractor.

Not a single factor stands alone in this determination. Factors that are relevant in one situation may also not be relevant in another situation. If the employer determines that they are unable to decide on the appropriate classification, contact the IRS to make a decision.

The keys are to look at the entire relationship and to consider the degree or extent of the client's right to direct and control the work of the contractor.

Finally, document all of the factors used to determine the classification in preparation for any challenge that might arise.


Susan Heathfield endeavors to provide correct, reasonable, ethical human resources management, employer and workplace advice on this website which is linked from this website. However, she is not an attorney, and the content on the website, while authoritative, is not guaranteed to be accurate or legal and should not be construed as legal advice.

The website has a worldwide audience, and labor laws and regulations vary from state to state and country to country, so the website may not apply to everyone in your workplace. When in doubt, always seek legal counsel or help from state, federal, or international government agencies to ensure that your legal interpretation and decisions are correct. The information on this website is for guidance, ideas and assistance only.