Payroll and Labor Law Compliance News

The IRS 20-Factor Test

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The IRS considers the existence of an employer-employee relationship to depend on whether the worker is subject to the will and control of the employer, based on the following factors:

1. Instructions. Employees typically must follow instructions as to when, where, and how to perform the job.
2. Training. Requiring training supports employee status.
3. Integration. Integration of the worker's services into the business operations suggests that the hirer directs and controls the worker.
4. Services rendered personally. If services must be rendered personally by a specific worker, the hirer controls the methods used to complete the work.
5. Control of assistants. Control by the hirer over the hiring, supervision, and pay of assistants implies employee status.
6. Ongoing relationship. A continuing relationship suggests that an employer-employee relationship exists.
7. Set hours of work. The establishment of set hours by the hirer implies control over the worker.
8. Full time work. A worker who must devote full working time to the hirer is being controlled.
9. Work on hirer's premises. On-premises work indicates employer control, especially when the work could be done elsewhere.
10. Order or sequence. Work that must be performed in an order or sequence established by the hirer suggests control.
11. Reports to hirer. A requirement that the worker submit regular oral or written reports to the hirer implies control.
12. Payment method. Payment by the hour, week, or month generally indicates an employer-employee relationship. Payment by the job or commission indicates independent contractor status.
13. Payment of expenses. Payment of the worker's business or travel expenses suggests an employer-employee relationship; the hirer is regulating and directing the worker's activities.
14. Furnishing tools, materials. Provision of tools, materials, and other equipment by the hirer shows an employer-employee relationship.
15. Significant investment. Independent contractor status is implied if the worker invests in the facilities used for the work. Absence of investment indicates an employer-employee relationship.
16. Realization of profit or loss. A worker who can realize a profit or suffer a loss as a result of providing services is usually an independent contractor.
17. Serving more than one firm. A worker who provides services to several unrelated firms at the same time generally is an independent contractor.
18. Serving the public. A worker whose services are regularly available to the general public is an independent contractor.
19. Right to discharge. The right of the hirer to discharge the worker at any time is a factor indicating an employer-employee relationship. But, an independent contractor may not be fired if his result meets contract specifications.
20. Right to quit. A worker with the right to terminate the relationship with the hirer at any time without liability is generally an employee.

The presence or absence of any one of the 20 factors is not determinative or conclusive; rather the IRS will consider all of the factors affecting the relationship.