To determine if an individual is an employee or an independent contractor, the business relationship between you and the individual performing the services must be examined. All evidence of control and independence must be considered.
Many factors are considered when deciding if a worker is an employee or an independent contractor. These factors fall into three main categories:
- Behavioral control
- Financial control
- Relationship of the parties
If you are generally in control of (or have the right to control) these factors, the worker is most likely your employee. Not all of these factors need to be present to determine worker status. Nonetheless, all factors must be considered.
Behavioral Control
If you have the right to direct or control the manner and means in which services are performed, you have behavioral control over the worker. You do not have to actually direct or control the way work is done, so long as you have the right to do so.
These behavioral control factors indicate the worker is an employee:
- You direct how, when, or where the work will be done
- You specify which tools or equipment will be used
- You specify the sequence in which services will be performed
- You determine who will be hired to assist with the work
- You decide where supplies and services will be purchased
- You establish work hours
- You require reports to be submitted
- You provide training regarding procedures and methods
Financial Control
If you have the right to direct or control the administrative aspects of the work, you have financial control over the worker.
These financial aspects indicate the worker is an employee:
- You reimburse or pay travel and business expenses
- You pay at regular intervals (hourly, weekly, etc.)
- You provide tools, materials, and other equipment
These financial aspects indicate the worker is an independent contractor:
- The worker has an opportunity for profit or risk of loss
- The worker has a significant investment in the work
- The worker offers services to the general public
- The services provided are not an integral part of the business (for example, a bank hiring a plumber)
Relationship of the Parties
These factors illustrate how you and your worker perceive your relationship and indicate your worker is an employee:
- The worker has the right to quit without incurring liability
- You have the right to fire the worker
- The worker has the right to receive employee benefits
- There is a continuing relationship between you and the worker
- Services performed by the worker are a key aspect of the regular business activities
Written contracts are considered when determining worker classifications, but they do not make a worker an employee or an independent contractor. The actual relationship between the parties must be examined.
