According to the Internal Revenue Service, courts consider many factors when determining if someone is an employee, an independent contractor, or a subcontractor. These factors are contained within three different categories:
- Behavioral control: whether the employer directs or controls how the work is done. This could include evaluating how, when, or where the work is done; the tools or equipment used; and if the worker has non-reimbursed expenses.
- Financial control: whether the employer directs or controls the economic aspects of the work, such as providing a significant investment or if there is an opportunity for profit or loss.
- Relationship of the parties: whether you and the worker have a written contract or if employee benefits are provided. Keep in mind, even if there is a written contract in place, if the parties to the contract are not acting in accordance with it, the contract may be ignored when determining worker status.
However, given these categories, there is no one clear-cut answer to determining this status. It is often different for each individual situation. If you are uncertain, it is prudent to check with either the IRS or another professional, such as your lawyer or accountant, to make sure you are classifying workers correctly. There could be substantial costs involved in repaying employment taxes on misclassified workers.
Your local independent insurance agent is also a valuable resource who can help you make this determination or refer you to other trusted local sources that can help.