The U.S. Internal Revenue Code requires the presence of specific characteristics between the employer and the contractual provider of personal/professional services before an Independent Contractor relationship can exist. Before any performance of services, campus departments contracting for personal/professional services must assess the relationship with the individual provider to ensure that the individual is properly classified. An independent contractor is defined as an individual over whom the employer has the right to control or direct only the result of the work, and not the means and methods of accomplishing the result.
The Internal Revenue Service (IRS) has established 20 guidelines to help employers determine whether a worker should be treated as an employee or an independent contractor for tax purposes. Those 20 guidelines** are:
Employees comply with their employer’s instructions about when, where, and how to work, or the employer has the right to control how a worker’s results are achieved.Independent contractors have more flexibility.
Employees may receive training from their employers to perform services in a particular manner.Independent contractors usually use their own work methods and receive no training from those purchasing their services.
Employees' services are usually integrated into the business's operations because they are key to the success or the continuation of the business.Independent contractors are independent of the business's operation.
Services Rendered Personally:
Employees render services personally.Independent contractors render services as contractors.
Employees work for an employer.Independent contractors can hire, supervise, and pay assistants under a contract that requires them to provide materials and labor and to be responsible for the results.
Employees generally have ongoing relationships with their employers.Independent contractors' relationships will usually be more sporadic.
Set Hours of Work:
Employers usually set their employees' work hours.Independent contractors usually set their own hours.
Employees may be required to work or to be available full-time.Independent contractors may work when and for whom they choose.
Work Done on Premises:
Employees usually work on their employers' premises or on a rout or at location approved by their employers.Independent contractors may work away from the employers premises when it could be done at the employers' premises.
Order of Sequence Set:
Employees may be required to perform services in the order or sequence set by their employers.Independent contractors can establish their own sequence.
Employees may be required to submit reports to their employers.Independent contractors can establish their own sequence.(However, reports related only to the end result are not an indication of employment or independence.)
Employees are paid by the hour, week, or month.Independent contractors are usually paid by the job or through a commission.
The business and travel expenses of employees are generally paid by their employers.Independent contractors are responsible for paying their own expenses.
Tools and Materials:
Employers normally furnish their employees with the key tools, materials, and other materials they need to do their jobs.Independent contractors normally furnish their own tools and materials.
Employees normally do not invest in the facilities (generally, equipment and premises).Independent contractors have a significant investment in the facilities they use to perform services for someone else.
Profit and Loss:
Employees do not experience a profit or loss.Independent contractors can experience a profit or loss.
Works for More than One Person or Firm:
Employees usually work for one firm at a time.Independent contractors may work for multiple persons or firms at the same time.
Offer Services to the General Public:
Employees usually work for one employer.Independent contractors make their services available to whomever they want.
Right to Quit:
Employees have the right to quit a job any time without incurring liability.Independent contractors usually agree to carry out specific tasks or series of tasks and are responsible for completing those tasks satisfactorily, or are legally obligated to make good for failing to do so.
Right to Fire:
Employees can be fired by their employers.Independent contractors cannot be fired as long as they produce a result that meets the specifications of their contract.
**The resource for the present version of the above 20 factors is copyright 1994 by John Ventura, and is excerpted from "The Small Business Survival Kit" published by Dearborn Financial Publishing Inc., Chicago, IL.
Additional independent contractor/employee determination factors (common law) for State employment tax purposes:
Belief of Parties:
It is an indication of employment if both the worker and the State believe the relationship is employment or if either party believes that the relationship is employment.If all parties agree that the relationship is one of independence, it may be. However, consideration should be given to the fact that many individuals do not know how an employee determination is made, and believe they are an independent contractor because they were told they are.
Required Level of Skill:
A low level of technical skill is strong evidence of employment, since as the skill level declines there is less room to exercise the discretion necessary for independence.A high level of technical skill is important when combined with other factors such as owning a separate and distinct business.
Custom in Industry and Location:
If the work is traditionally done by civil service employees in Sacramento under the direction of a supervisor it is an indication of employment.If the work is usually done by independent contractors in Sacramento, it is an indication of independence.