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| Have you ever seen the
IRS 20 Questions? This is the basis
test that the IRS uses to determine
whether your workers are independent
contractors or employees. Answering
these questions in an improper manner
can put your company in a position where
it could owe thousands of dollars in
payroll related expenses. |
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| Instructions |
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Is the individual required to comply
with instructions about when, where,
and how work is to be performed? |
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| Training |
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Are the individuals trained to perform
a job in a particular method or manner?
An independent contractor usually uses
his or her own methods and doesn't receive
training from the purchaser of his or
her services. |
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| Integration |
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Are the services performed integrated
into the operations of the business?
This usually shows the individual is
subject to control and direction, thus
classifying him or her as an employee. |
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| Personal Services |
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Does the business require that the
services be performed in person and
that the employer has substantial interest
in how the results will be achieved?
This suggests control over an employee. |
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| Use of Assistants |
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An independent contractor hires, directs,
and pays for his or her own assistants;
supplies his or her own materials; and
works under a contract providing that
the worker is responsible only to achieve
certain results. If the business hires,
pays, or supervises assistants to help
the individual performing the services
under contract, it suggests an employer-employee
relationship. |
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| On-going Relationship |
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Is the individual part-time or seasonal?
On-going work suggests the worker is
likely to be an employee. |
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| Fixed Hours of Work |
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Are the individual's hours determined
by the employer? An independent contractor
usually sets their own work hours. |
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| Full-Time Work |
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Does the employer control the time
of work or restrict the worker from
taking other jobs? Again, this indicates
control over an employee. |
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| Work Location |
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If the worker performs services away
from the employer's premises ("off-site"),
this may suggest independent contractor
status. Of course, many properly classified
independent contractors will work on
the employer's premises. |
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| Work Flow |
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Does the employer establish routines,
schedules, and patterns for a worker?
This indicates employee status. |
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| Reports |
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Is the worker required to supply activity
reports? Whether written or oral, requiring
regular reports usually suggests employee
status. |
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| Manner of Payment |
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Is the worker paid by the hour, week,
or month? This suggests being an employee,
while being paid an agreed upon lump
sum for a job suggests being an independent
contractor. In addition to lump-sum
payments, employers may also utilize
a straight commission basis of compensation
without necessarily affecting the worker's
status as an independent contractor. |
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| Payment of Expenses |
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Does the employer pay expenses? This
usually means he or she has the right
to regulate and direct business activities
and indicates employee status. |
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| Providing Tools and Equipment |
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Is the worker supplied with tools
and equipment? Independent contractors
usually provide their own equipment
while employees use those belonging
to the employer. |
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| Investment |
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Does the individual have a significant
investment in a work facility? If not,
they may be considered an employee. |
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| Profit or Loss |
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Is there no risk to incur a loss or
no ability to realize a profit by the
worker? Only independent contractors
have the capacity for such losses and
gains. The risk of loss may be a result
of investments in equipment or due to
a liability for other expenses. |
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| Marketing |
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Are workers discouraged from shopping
their services to others? Employees
don't normally market their services
to the public on a regular basis, while
independent contractors might. |
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| Right to Discharge |
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Can an employer discharge the worker
at any given time? This suggests employment.
An independent contractor cannot be
dismissed (without legal liability)
unless the contract specifications are
not met. |
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| Right to Quit |
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Can the worker quit at any time without
liability? An independent contractor
may be liable for failure to perform
according to contractual terms. |
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