Personal Services Payments - Attachment 2
FACTORS TO CONSIDER IN DETERMINING EMPLOYER-EMPLOYEE RELATIONSHIP
- Instructions. A worker who is required to comply with other persons' instructions about when, where, and how (s)he is to work is ordinarily an employee.
- Training. Training a worker by requiring an experienced employee to work with the worker, by corresponding with the worker, by requiring the worker to attend meetings, or by using other methods, indicates that the person(s) for whom the services are performed wants the services performed in a particular method or manner.
- Integration. Integration of the worker's services into the business operations generally shows that the worker is subject to direction and control.
- Services Rendered Personally. if the services must be rendered personally, presumably the person(s) for whom the services are performed is interested in the methods used to accomplish the work as well as in the results.
- Hiring, Supervising, and Paying Assistants. If the person(s) for whom the services are performed hires, supervises, and pays assistants, that factor generally shows control over the workers on the job. However, if one worker hires, supervises, and pays the other assistants pursuant to a contract under which the worker agrees to provide materials and labor under which the worker is responsible only for the attainment of a result, this factor indicates an independent contractor status.
- Continuing Relationship. A continuing relationship between the worker and the person(s) for whom the services are performed indicates that an employer-employee relationship exists. A continuing relationship may exist where work is performed at frequently recurring although irregular intervals.
- Set Hours of Work. The establishment of set hours of work by the person(s) for whom the services are performed is a factor indicating control.
- Full-time Required. If the worker must devote substantially full-time to the business of the person(s) for whom the services are performed, such person(s) has control over the amount of time the worker spends working and impliedly restrict the worker from doing other gainful work. An independent contractor, on the other hand, is free to work when and for whom (s)he chooses.
- Doing Work on Employer's Premises. If the work is performed on the premises of the person(s) for whom the services are performed, that factor suggests control over the worker.
- Order or Sequence Set. If a worker must perform services in the order or sequence set by the person(s) for whom the services are performed, that factor shows that the worker is not free to follow the worker's own pattern of work but must follow the established routines and schedules of the person(s) for whom the services are performed. Often, because of the nature of an occupation, the person(s) for whom the services are performed does not set the order of the services or set the order infrequently. It is sufficient to show control, however, if such person(s) retains the right to do so.
- Oral or Written Reports. A requirement that the worker submit regular or written reports to the person(s) for whom the services are performed indicates a degree of control.
- Payment by Hour, Week, Month. Payment by the hour, week or month generally points to an employer-employee relationship, provided that this method of payment is not just a convenient way of paying a lump sum agreed upon as the cost of a job. Payment made by the job or on a straight commission generally indicates that the worker is an independent contractor.
- Payment of Business and/or Traveling Expenses. If the person(s) for whom the services are performed ordinarily pays the worker's business and/or traveling expenses, the worker is ordinarily an employee.
- Furnishing of Tools and Materials. The fact that the person(s) for whom the services are performed furnishes significant tools, materials, and other equipment tends to show the existence of an employer-employee relationship.
- Significant Investment. If the worker invests in facilities that are used by the worker in performing services and are not typically maintained by employees (such as the maintenance of an office rented at fair value from an unrelated party), that factor tends to indicate that the worker is an independent contractor. On the other hand, lack of investment in facilities indicates dependence on the person(s) for whom the services are performed for such facilities and, accordingly, the existence of an employer-employee relationship.
- Realization of Profit Or Loss. A worker who can realize a profit or suffer a loss as a result of the worker's services (in addition to the profit or loss ordinarily realized by employees) is generally an independent contractor, but the worker who cannot is an employee.
- Working for More Than One Firm at a Time. If a worker performs more than deminimis services for a multiple of unrelated persons or firms at the same time, that factor generally indicates that the worker is an independent contractor.
- Making Service Available to General Public. The fact that a worker makes his/her services available to the general public on a regular and consistent basis indicates an independent contractor relationship.
- Right to Discharge. The right to discharge a worker is a factor indicating that the worker is an employee and the person possessing the right is an employer. An independent contractor, on the other hand, cannot be fired so long as the independent contractor produces a result that meets the contract specifications.
- Right to Terminate. If the worker has the right to end his/her relationship with the person for whom the services are performed at any time (s)he wishes without incurring liability, that factor indicates an employer-employee relationship.
For more IRS information on the subject, a training manual is available at http://www.irs.gov/pub/irs-utl/emporind.pdf.