When a business brings on help, one of the first decisions is whether the person is an independent contractor or an employee. The label in the agreement matters less than the facts of the relationship.
How the IRS looks at it
The IRS groups the facts into three categories:
- Behavioral control: does the business control or have the right to control what the worker does and how they do it?
- Financial control: does the business control the business side of the work, such as how the worker is paid, who provides tools and whether expenses are reimbursed?
- Relationship of the parties: are there written contracts, benefits, an expectation that the relationship will continue, and is the work a key part of the business?
Other agencies too
State agencies and the U.S. Department of Labor have their own tests for wages, unemployment and workers' compensation. A worker can be treated differently under different laws.
When in doubt
Talk to an accountant or attorney before you decide. The IRS also offers Form SS-8 to request a determination.
Our contractor or employee question list walks through the questions.
General information, not legal or tax advice.
This article is general information, not legal, tax or regulatory advice. Rules change; confirm current requirements with the responsible agency or a licensed professional.
