Independent Contractors Determining Classification: Common Law Control Test

        Employee or Independent Contractor?


The IRS uses a version of the common law control test to determine whether an individual is an employee or an independent contractor. If the majority of the factors in the control test favor the existence of an employer-employee relationship, then the individual should be classified as an employee (or vice versa).

IRS Factors Used to Determine Control

Answering the following questions in the affirmative suggests that an employer contractor relationship exists:

     • Can the individual earn a profit or suffer a loss from doing the task?

     • Does the individual offer services to the public?

     • Does the individual provide his or her own tools, materials, office space
     or supplies?

     • Is the individual paid when the job is completed?

     • Does the individual provide his or her services for more than one company
     at a time?

     • Does the individual have the authority to hire others, and is he or she
     responsible for their wages?

     • Doe the individual set his or her own working hours?

     • Does the individual cover his or her own travel and business expenses?

Answering the following questions in the affirmative suggests the existence of an employer-employee relationship:

     • Does the individual have a long-term relationship with the company?

     • Does the individual work full time for the company?

     • Does the individual receive instructions on where to work?

     • Can the individual quit without being liable for breaking a contract?

     • Is the individual is paid by the hour?

     • Does the employer instruct the individual on how to perform his or
     her job?

     • Has the individual received training for the job he or she is to perform?

     • Is the individual required to give progress reports on the work completed
     throughout the project?

     • Is the individual’s work considered an important aspect of the company’s
     daily operations?

Other government agencies, including state agencies, have developed their own systems to determine an individual’s status within a company. Employers should contact these agencies directly for specific information.

Hiring an independent contractor offers employers many advantages. Unlike for traditional employees, employers do not pay taxes on independent contractors’ wages, and are not expected to provide benefits. Employers often save 30 to 40 percent on labor costs by using independent contractors. In addition, as independent contractors are generally hired for a specific period or project, employers have no obligation to rehire them after each contract period or project is complete.