A contractor is typically paid by the job or contract. An employee is usually paid hourly, weekly or monthly. Questions that are considered are: Who controls where and when the work is to be done? Who provides the tools or equipment or makes the decision of what supplies are needed? Does the worker have the right to hire assistants? Who provides the training?įinancial questions include how the worker is compensated.
Evidence of the degree of control a worker might have falls into three realms: behavioral control, financial control and the type of relationship in general.īehavioral control encompasses how the work is to be done.
To determine if a worker is an independent contractor or an employee, tax officials examine the relationship of the worker and the business, scrutinizing whether that relationship is one of control or true independence. The decision to classify a worker as an employee or a contractor depends on the facts and circumstances of each case. Furthermore, workers themselves may prefer to be contractors rather than employees because as contractors, they have more freedom and enjoy being their own bosses. And, many legal burdens of the typical employer-employee relationship can be avoided. The IRS is the ultimate arbiter, and failure to follow its rules can be financially painful to a business.īy using independent contractors, businesses can retain flexibility when workloads are cyclical or sporadic, buying only as much labor as is needed.
However, it is not up to the business or the worker to decide who is a contractor and who is an employee. With the down economy, many companies have eliminated jobs and turned to independent contractors to trim costs.
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