How does the IRS decide whether to classify a worker as an employee or an independent contractor?
The IRS uses the common-law “right of control” test to determine worker status. Under this test, workers are employees if the people they work for have the right to direct and control the way they work — including the details of when, where and how the job is accomplished. In contrast, independent contractors are not controlled by the firms that hire them. A hiring firm’s control is limited to accepting or rejecting the final results that an independent contractor achieves. The IRS looks at a number of factors when determining whether a worker is an employee or an independent contractor. The agency is more likely to classify as an independent contractor a worker who: • can earn a profit or suffer a loss from the activity • furnishes the tools and materials needed to do the work • is paid by the job • works for more than one firm at a time • invests in equipment and facilities • pays his or her own business and traveling expenses • hires and pays assistants, and • sets his or her own w
