Misclassifying Employees as Independent Contractors — Tip of the Week

The issue of misclassifying employees as independent contractors is heating up. Here’s this week’s tip: If you have a bunch of workers classified as independent contractors, you need to get some legal advice about their classification. It’s certainly possible that any employee could have independent contractors. But when there are dozens or even hundreds of workers classified as independent contractors, there’s usually some misclassification going on.

The Internal Revenue Service has long had a 20-factor test to assist employers on how to classify employees vs. independent contractors. This test is still used by the IRS, other government agencies and courts.

(1) Can earn profit or suffer loss from activity — indicates i/c status.

(2) Is told where to work by hiring firm — indicates ee status.

(3) Offers services to general public — i/c.

(4) Can be fired at will by hiring firm — ee.

(5) Furnishes tools and materials needed to do work — i/c.

(6) Is paid by the hour, week or month, or by the job or on commission — by job, i/c.

(7) Works for more than one firm at a time — i/c.

(8) Has continuing relationship with hiring firm — ee.

(9) Invests in equipment and facilities — i/c.

(10) Pays own business and travel expenses — i/c.

(11) Has the right to quit without incurring liability — ee.

(12) Receives instructions from hiring firm — ee.

(13) Is told in what sequence or order to work by hiring firm — ee.

(14) Receives training from hiring firm — ee.

(15) Required to perform services personally — ee.

(16) Hires and pays assistants — i/c.

(17) Sets own working hours — i/c.

(18) Works full-time for hiring firm — ee.

(19) Provides regular oral or written progress reports to hiring firm — ee.

(20) Provides services that are an integral part of hiring firm’s day-to-day operations — ee.

No one factor is determinative, but when taken together, if the worker’s activities are controlled by the employer, he/she is likely to be an employee.