The Great Debate: Employee or Contractor?
The Common Law Test to determine whether a worker is an employee
The table below from the American Payroll Association’s Fundamentals of Payroll classifies employees versus independent contractors under the Common Law Test.
- Required to comply with employer’s instructions about when, where, and how to work
- Works exclusively for the employer
- Hired by the employer
- Subject to dismissal; can quit without liability
- Has a continuing relationship with the employer
- Work done personally
- Performs services under the company’s name
- Paid a salary; reimbursed for expenses; participates in company’s fringe benefits programs
- Furnished tools, equipment, materials, and training
- If an outside salesperson: company provides leads, sets terms and conditions of the sale, assigns a territory, and controls the sales process
- Sets own hours; determines own sequence of work
- Can work for multiple employers; services available to the public
- Is self-employed
- A contract governs how the relationship can be severed
- Works by the job
- Permitted to employ assistants
- Performs services under the worker’s business name
- Payment by the job; opportunity for profit and loss
- Furnishes own tools, equipment, and training; substantial investment by worker
- Controls the sales process and terms
Nonemployees use Form W-9 to provide a taxpayer identification number (social security number or employer identification number) to the company that the nonemployee has received a reportable payment.
Source: American Payroll Association
Disclaimer: This information is not intended to provide a definitive answer. Always seek guidance from your attorney or accountant when classifying employees. Employers or independent contractors can get a definitive IRS ruling on their worker’s status by completing Form SS-8.