Factors
determining Employee vs. Independent Contractor Status
There are 3 basic tests for determining
if a person paid is a subcontractor and not an employee:
- Common Law "Master and Servant" Test;
- State Law "A,B, C" Test;
- Federal Test
Common
Law "Master and Servant" Test
The Common Law test for an Employee is
traditionally "direction
and control." If the person being paid is directed and
controlled as to the means as well as the outcome, that person is an
Employee.
Without the payer stating how
the work is to be done, and without specific supervision, the payee is
a subcontractor.
This is the standard most people usually think of when defining employee vs. independent contractor.
State
"A,B,C" Test
Because States are interested in collecting
Unemployment and Disability "Contributions" especially when there are
true independent contractors that cannot collect benefits, meeting the
A,B,C standard is extremely difficult.
These audits to prove employee status are frequently
performed by State Departments of Labor. The results are then reported to the State Taxation department as well as the IRS.
The "A" test is the common law "direction and
control" standard.
The "B" test is performing services at the site of
the employer or usually performed by employees.
The "C" and most difficult test is
proof the contractor is in a business where the
services are usually independent and the business is not dependent upon
the payer. The contractor must have the ability to receive an profit or
suffer a loss from the business. Frequently, the contractor will have
employees and a number of customers.
We
can help you fight a State Audit- either Taxation (Revenue) or
Department of Labor . Do Not let the government force you to be
uncompetive! Call Ronald
J. Cappuccio, J.D., LL.M.(Tax),Tax Lawyer at (856) 665-2121.
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Summary
of Federal - IRS Factors
Employee vs.
Independent Contractor Status:
1. Instructions-Direction and Control. Employees generally follow
instructions about when, where, and how work is to be performed;
contractors establish their own hours and have no instructions
regarding how the job should be completed.
2. Training. Employees
typically receive training via classes and
meetings regarding how services are to be performed; contractors
generally establish their own procedures and receive no training.
3. Services rendered
personally. Services are typically performed
personally by the employee; contractors may utilize others to perform
job tasks and duties.
4. Supervision. Most
employees are supervised by a foreman or
representative of the employer; contractors generally are not.
5. Set hours of work.
An employee's hours and days are set by the
employer; contractors dictate their own time and are often retained to
complete one particular job.
6. Full time required.
An employee typically works for only one
employer; contractors may have several jobs or work for others at the
same time.
7. Work on premises.
Employers work on the premises of an employer or
on a route or site designated by the employer; contractors typically
work from their own premises and pay rent for their own premises.
8. Manner of payment.
Employees are generally paid in regular amounts
at stated intervals; contractors are paid upon the completion of the
job or project, in a lump sum or other arrangement, such as on a
commission basis.
9. Furnishing of tools
and materials. Employees are usually furnished
tools and materials by employers; contractors typically furnish and pay
for their own tools, materials, and expenses.
10. Profit. Employees
generally receive no direct profit or loss from
work performed, while contractors do.
11. Job security.
Employees may be discharged or quit at any time
without incurring liability; contractors are typically discharged after
a job is completed and are legally obligated to complete a particular
job to avoid liability.
Call Ronald
J. Cappuccio, J.D., LL.M.(Tax),Tax Lawyer at (856) 665-2121.
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Website LLC
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Ronald
J.Cappuccio, J.D., LL.M.(Tax)