Who
is an Independent Contractor?
In Revenue Ruling 87-41, the IRS developed a
test to classify employee-independent
contractor status. The factors and
considerations are as follows:
DEGREE OF
CONTROL: The
organization should not have the right to
control the method or manner of the job to
be performed.
RIGHT TO
DISCHARGE: The
organization cannot terminate the contractor
as long as he or she meets his or her
obligations under the contract.
RIGHT TO
DELEGATE WORK: The
contractor can bring in whomever he wants to
accomplish the purpose of the contract.
HIRING
PRACTICES: The
contractor should have the right to hire and
fire assistants that he or she uses in
performing the contract.
PAYMENT
PRACTICES: An
independent contractor should be paid by the
job as opposed to by the hour, week, or
month.
FURNISH
TRAINING: The
organization should not provide any type of
training of inexperienced workers.
SKILL:
Independent contractors are generally viewed
as skilled workers.
DURATION
OF RELATIONSHIP:
The contractor should be hired for a
specified time period. Continuous work
implies an employee relationship.
CONTROL
OVER HOURS OF WORK:
An independent contractor should be allowed
to set his or her own hours.
INDEPENDENT
TRADE: The
contractor should be free to work for any
number or person or firms simultaneously.
FURNISHING
OF TOOLS: The
contractor should be able to provide his or
her own tools.
PLACE OF
WORK: If possible,
the independent contractor should perform
his or her job off the organization’s
premises.
PROFIT AND
LOSS: The
contractor should have the opportunity for
profit or loss.
INTENT OF
PARTIES: The
parties’ intent to create an independent
contractor relationship should be
documented.
PRINCIPAL
IN BUSINESS: The
contractor should be principal in his or her
own business.
SEQUENCE
OF WORK: The
contractor should be able to determine the
sequence of the work performed outside of
the organization’s control.
REPORTS
REQUIRED: The
contractor should not be required to submit
regular oral or written reports or to attend
organization’s meetings.
SAME WORK
AS REGULAR EMPLOYEES:
The organization should not have the
independent contractor do the same type of
work as its regular employees.
INTEGRATION:
The organization should not engage an
independent contractor to do something that
is part of the day-to-day operations of the
company.
INDUSTRY
CUSTOMS: The
industry should have a definite custom
regarding worker classification.
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