|Tax Topic #762
||2008 Tax Year
Topic 762 - Independent Contractor vs. Employee
To determine whether a worker is an independent contractor or an employee
under common law, you must examine the relationship between the worker and
the business. All evidence of control and independence in this relationship
should be considered. The facts that provide this evidence fall into three
categories – Behavioral Control, Financial Control, and the Type of
Behavioral Control covers facts that show whether the business
has a right to direct or control how the work is done through instructions,
training, or other means.
Financial Control covers facts that show whether the business
has a right to direct or control the financial and business aspects of the
worker's job. This includes:
- The extent to which the worker has unreimbursed business expenses,
- The extent of the worker's investment in the facilities used in performing
- The extent to which the worker makes his or her services available to
the relevant market,
- How the business pays the worker, and
- The extent to which the worker can realize a profit or incur a loss.
Type of Relationship covers facts that show how the parties perceive
their relationship. This includes:
- Written contracts describing the relationship the parties intended to
- The extent to which the worker is available to perform services for other,
- Whether the business provides the worker with employee–type benefits,
such as insurance, a pension plan, vacation pay, or sick pay,
- The permanency of the relationship, and
- The extent to which services performed by the worker are a key aspect
of the regular business of the company.
For more information, refer to Publication 15-A (PDF), Employer's
Supplemental Tax Guide, or Publication 1779 (PDF), Independent
Contractor or Employee. If you want the IRS to determine whether a specific
individual is an independent contractor or an employee, file Form SS-8 (PDF), Determination of Worker Status for Purposes of Federal Employment
Taxes and Income Tax Withholding.
Page Last Reviewed or Updated: December 22, 2008
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