Think of the factors as weights on a balance scale
The twenty common law factors of a perfect independent contractor relationship are:
1. Is the worker required to comply with instructions on where, how and when the work is to be done? An individual who must comply with another person's instructions about when, where or how to work is generally considered an employee. This applies even if the other person simply has the right to require compliance, but does not exercise that right. Independent contractors are not required to follow, nor are they furnished with, instructions to accomplish a job.
2. Is the worker provided training to perform the job in a particular manner?Requiring that an individual be trained through such methods as working with an experienced employee, attending instructional sessions or training courses or corresponding with the employer is indicative of employee status because it shows that the employer wants to control the way the work is done or the method used. Independent contractors, on the other hand, normally are not trained by the purchasers of their services, but use their own methods to accomplish the work.
3. Are the services performed an integral part of the organization's operations? The fact that an individual's services are so integrated into an employer's operations that the success or continuation of the business depends on the performance of the services generally indicates that the individual is subject to a certain amount of control by the owner of the business and is therefore most appropriately classified as an employee.
4. Must the services be rendered personally? Employee status is suggested if an individual is required to personally render the services in question. Such an arrangement, says the IRS, indicates the employer is interested in controlling the methods used to accomplish the results. By contrast, an individual's right to substitute another's services without the employer's knowledge suggests the existence of a contractor relationship.
5. Does the business hire, supervise and pay assistants to help the worker on the job? An employer that hires, supervises and pays an individual's assistants usually is viewed as controlling the work and the individual performing the services in question. On the other hand, individuals who hire, supervise and pay other workers in accordance with an arrangement in which they have agreed to provide the labor needed to attain a certain result are generally treated as independent contractors.
6. Is there a continuing relationship between the worker and the business?Employees usually are hired for a continuing, indefinite period. This generally applies even to work or services performed on an irregular but recurring basis, as well as to part time, temporary and seasonal work. The relationship between an independent contractor and employer usually ends when the job is completed.
7. Does the organization set the work schedule? A requirement that individuals adhere to certain work hours established by the employer generally is viewed as a factor indicating employer control.
8. Is the worker required to devote his/her full time to the organization? Employee status is suggested if an individual must work on a substantially full-time basis for the employer since this indicates that the employer controls the amount of time the individual spends working and thus restricts the worker's ability to perform for someone else. By contrast, independent contractors usually are free to work when and for whom they choose.
9. Is the work performed at the company's place of business or at specific places designated by the company? Performance of the work on employer's premises may be viewed as evidence of employer control, especially if the work could be done elsewhere.
While performance at an off-premises site demonstrates some freedom from employer control, it does not by itself mean that the worker is an independent contractor. According to the IRS, the importance of the work on premises factor depends on the nature of the service involved and the extent to which an employer generally would require that employees perform such services on the employer's premises. Employer control is suggested when the employer has the right to have the worker work at a specific place.
10. Does the organization direct the sequence in which the work is performed? A requirement that an individual perform work in a certain order or sequence may be viewed as a factor showing that the employer controls or retains the right to control the worker.
11. Are oral or written reports required to be submitted? A degree of control is suggested, IRS says, where an individual is required to submit regular oral or written reports to the employer.
12. Are payments to the worker made by the hour, week or month? Employees generally are paid by the hour, day, or month, while independent contractors typically are paid by the job or a lump-sum basis.
13. Are travel and lodging expenses reimbursed? Employer payment of an individual's business or work-related travel expenses generally indicates employee status.
14. Does the organization furnish tools and materials? An employer-employee relationship is indicated where an employer supplies a worker with significant amount of tools, materials, or other equipment. Moreover, in some occupations and industries where it is customary for individuals to provide their own tools, these workers also may be treated as employees.
15. Does the worker have an investment in equipment or facilities? Individuals are likely to be treated as independent contractors if they have a significant investment in facilities they use in the course of performing services. The IRS stresses that special scrutiny is required with respect to certain types of facilities, such as home offices. Independent contractors make their services available to the general public by one or more of the following:
1) having an office and assistants;
2) having business signs;
3) having a business license;
4) listing their services in a business directory; or
5) advertising their services.
16. Does the worker stand to realize a profit or a loss as a result of the work? Independent contractors typically can invest significant amounts of time or capital in their work without guarantee of success, i.e., they realize a profit or sustain a loss based on their success in performing the work or service. When workers are insulated from loss or are restricted in the amount of profit they can gain, they usually are classified as employees.
Employees can't suffer a loss. Five circumstances show that a profit or loss is possible:
1) the independent contractor hires, directs, and pays assistants;
2) the independent contractor has his own office, equipment, materials, or facilities;
3) the independent contractor has continuing and recurring liabilities;
4) the independent contractor has agreed to perform specific jobs for prices agreed upon in advance; and
5) the independent contractor's services affect his own business reputation.
17. Does the worker work exclusively for the organization? Individuals who perform services for a number of businesses or people at the same time usually are considered independent contractors. IRS cautions, however, that a worker who performs services for more than one person may be an employee of each of the persons, especially where such persons are part of the same service arrangement.
18. Does the worker work predominantly for the organization or are services available to the general public? Individuals who make their services available to the public on a regular and consistent basis generally are treated as independent contractors.
19. Can the worker be discharged for reason other than nonperformance of contract provisions? If an employer has the right to discharge an individual, that worker is viewed as an employee. Independent contractors, on the other hand, cannot be dismissed as long as they perform in accordance with their contract specifications.
20. Can the worker terminate the relationship without liability? Employees typically can end their employment relationship at any time without incurring liability, whereas independent contractors might be liable for a breach of contract if they leave without completing their work.