In this post, we will go through the whole list of variables to consider when deciding whether to categorise your personnel as independent contractors or employees. The Internal Revenue Service prepared this list (IRS).
It’s a large list, but it will help you distinguish between employees and contractors and prevent labour misclassification.
Table of Contents
Factor 1: Directions
Employee status is indicated if the person for whom the services are provided has the authority to compel compliance with instructions.
Factor 2: Education
Worker training (for example, by mandating attendance at training sessions) implies that the person for whom services are provided prefers that the services be conducted in a certain way (which indicates employee status).
Factor 3 Integration
Employee status is indicated by the worker’s integration of services into the business activities of the person for whom services are done.
Factor 4: Personal Services Provided
If the services must be conducted personally, this implies that the person for whom the services are provided is interested in the techniques employed to complete the task (which indicates employee status).
Factor 5: Recruiting, supervising, and compensating assistants
If the person for whom services are provided employs, supervises, or pays helpers, this often suggests that the individual is an employee. However, independent contractor status is indicated if the worker employs and manages others under a contract under which the worker agrees to supply material and labour and is alone accountable for the outcome.
Factor 6: Persistent Relationship
Employee status is shown by a continual connection between the worker and the person for whom the services are provided.
Factor 7: Establish Work Hours
Employee status is indicated by the setting of regular hours for the worker.
Factor 8: Full-Time Employment Is Required
Employee status is indicated if the worker must dedicate practically all of his or her time to the business of the person for whom services are provided. An independent contractor may work whenever and for whoever he or she wants.
Factor 9: Working on the Employer’s Property
If the job is done on the premises of the person for whom the services are provided, this suggests employee status, particularly if the work could be done elsewhere.
Factor 10 .Order or Sequence Test
If a worker is required to provide services in the order or sequence specified by the person for whom the services are done, it implies that the worker is not free to follow his or her own pattern of work and suggests employee status.
Factor 11: Written or oral reports
Employee status is indicated by the necessity that the worker submit regular reports.
Factor 12: Hourly, weekly, or monthly payment
Payment by the hour, week, or month implies employee status; payment by work or commission suggests independent contractor status.
Factor 13: Business and/or travel expenses must be paid.
If the person for whom the services are provided pays for the expenditures, this shows that the individual is an employee. To reduce costs, an employer usually maintains the power to direct the worker.
Factor 14: Provision of Tools and Materials
Employee status is indicated by the providing of substantial tools and supplies to the worker.
Factor 15: Large Investment
Investment in the worker’s facilities shows independent contractor status.
Factor 16: Profit or loss realisation
An independent contractor is a worker who may profit or lose as a consequence of the services (in addition to the profit or loss normally experienced by employees).
Factor 17: Working for more than one company at the same time
If a worker provides more than de minimis services for many companies at the same time, he or she is most likely an independent contractor.
Factor 18: Providing Service to the General Public
Independent contractor status is indicated when a worker makes his or her services accessible to the public on a regular and consistent basis.
Factor 19: Discharge Right
The ability to fire a person is one of the indicators that the worker is an employee.
Factor 20: Termination Rights
Employee status is indicated when a worker has the right to end the connection with the person for whom services are provided at any moment without incurring liabilities.