Top 8 Ways to Determine Independent Contractor or Employee Status

Small businesses looking for fast growth have often chosen to hire independent contractors over employees for many compelling reasons. There’s not as much paperwork. If things don’t work out, not as much time and money have been invested.   Independent contractors are responsible for paying their own payroll taxes. Business owners are able to exclude them from retirement plans and other benefits. The list goes on and on.

The stakes are high, however, for federal and state governments who are looking to collect payroll taxes and for workers wanting to be included in benefit plans. As a small business owner, evaluating the job tasks and descriptions and understanding how the IRS classifies workers as independent contractors or employees could possibly save a small business owner from much pain down the line.

Be aware of these key factors when choosing to work with either an independent contractor or an employee. If the answer is yes to many of the questions below, then the person hired should be considered an employee and the employer is fiscally responsible for payroll taxes, workers comp, and certain job benefits as required by law.

  1. Does the business have the right to control what the worker does and how they perform the work?
  2. Is the training and degree of job instruction regarding where and how to do the job detailed?
  3. Will the firm reimburse the individual for travel expenses?
  4. Will the business reimburse the individual for job-related tools and supplies?
  5. Is the individual paid by the hour rather than by a single payment to complete a job?
  6. Is it a requirement that the individual does not work for more than one firm?
  7. Does the business provide the individual with paid vacation, sick leave or retirement benefits?
  8. Is the individual hired indefinitely rather than for a specific project or period of time?