Correctly classifying your worker as an employee or an independent contractor is an essential task to avoid civil liabilities, penalties, and fines associated with misclassification. This article will cover the control test typically used by the Internal Revenue Services (IRS) in determining independent contractor status, which can be used as a general self-evaluation tool for your current workforce. For a state-specific determination on your workforce’s classification, contact us for a legal consultation.

The Control Test: The IRS Standard for Independent Contractor

The IRS standard takes a holistic approach to independent contractor classification. It looks at three aspects of the worker’s control or independence:

1. Behavioral control. Variables that go into determining whether the employer or worker has behavioral control are:
   1. the type of instructions given,
   2. degree of instruction,
   3. the way the work is evaluated, and
   4. the training needed or given.

The more control there is, the more likely the relationship is categorized as an employment relationship.

2. Financial control. Variables that go into determining whether the employer or worker has financial control are:
   1. how the worker is paid,
   2. whether expenses are reimbursed, and
   3. who provides tools and supplies.

3. The type of relationship. Variables that go into determining whether the relationship is with an independent contractor or an employee are:
   1. a written contract,
   2. employee-type benefits like pension plan contributions, health insurance, or vacation pay,
   3. length of the relationship, and
   4. if the services provided are key activities of the business.

If you are an employer who needs guidance or has questions on determining whether your worker is an independent contractor or employee, contact us for a complimentary consultation.

Common-Law Darden Test

In determining whether a worker is an independent contractor or an employee, this test considers a wide variety of factors like:

• skills required by the worker;
• sources of supplies and tools;
• work location;
• duration of the relationship between the parties;
• company’s right to assign additional projects to the worker;
• the extent of the worker’s discretion over when and how long to work;
• payment method;
• worker’s role in hiring and paying assistants;
• whether the work performed is part of the regular business of the company;
• company’s status as “in business;”
• worker’s eligibility for employee benefits; and
• worker’s tax treatment.

Common-Law 20-Factor Test

Lastly, state agencies frequently consider the 20-factor test when making independent contractor determinations. The 20 factors are (1) instructions, (2) training, (3) integration with the company’s operations, (4) services rendered personally, (5) hiring, supervising, and paying helpers, (6) continuing relationship, (7) set hours of work, (8) full time or exclusive work, (9) location where services are performed, (10) specifying the order or sequence of work, (11) oral or written reports, (12) payments, (13) business or travel expenses, (14) tools and materials, (15) investment, (16) profit and loss, (17) number of companies with whom the independent contractor works, (18) advertising services to the general public, (19) right to fire, and (20) right to quit.

Different tests and interpretations can mean:

• a worker is an independent contractor for some purposes and an employee for others;
• a worker who provides two different services to the employer is an employee for one and an independent contractor for the other, and
• courts applying the same test to the same position may arrive at different results.

Although the tests for independent contractor status often share common characteristics, each test is unique and requires the skills of a professional to interpret. If you are an employer who needs guidance or has questions on determining whether your worker is an independent contractor or employee, contact us for a complimentary consultation.