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Are You an Employee or Independent Contractor?

It matters in so many ways: there are differences in the taxes you pay; how social security is handled and whether you are entitled to benefits, vacations and holidays. Perhaps, most importantly, it often determines who owns the work you create. A lot of companies try to cheat freelancers out of important – and expensive – benefits. Answer the next 20 questions. It’ll help you know whether you should be asking for more.

The IRS 20 Questions

Generally, employers have to withhold income taxes, pay social security and Medicare taxes, and unemployment taxes on wages paid to an employee. An employer does not generally have to withhold or pay any taxes on payments to independent contractors.

Common-Law Rules

To help you determine whether you’re (or someone you hired) an employee under the IRS’ common-law rules, the IRS has set out 20 guidelines. Hint: it’s all about control. As you review these, you’ll see that if an employer controls you and your work, then, odds are, you are (or should be) an employee.

 Not every guideline applies in every situation and the importance of each factor varies depending on the type of work and individual circumstances. However, all relevant factors are considered in making a determination, and no one factor is decisive. 

Even if you have an agreement with an employer that says you’re an independent contractor, you may not be. This is a classic case of “if it looks, walks, and quacks like a duck, it’s a duck,” even if you call it “Goofy” or “Snoopy.”

 If your employer plays fast and loose with these rules, it’ll hurt them as much as it hurts you. The person who collects and pays withholding taxes may be held personally liable for an amount equal to the taxes that should have been withheld.

So – the 20 Factors Are:

1. Who tells you what to do?
 Employees must obey instructions about when, where, and how to work. Even if no specific instructions are given, if the employer has the right to control how results are achieved, then they are in a position to give instructions, which is the same thing as giving them.



2. Who pays to brush up your skills? 
An employee may be trained to perform work in a particular way. Independent contractors typically use their own methods and receive no training from clients.



3. Are you a cog?
 If an employee’s work is an integral part of the business’ operations, their services are considered important to the success or continuation of the business. This shows that the employee is subject to direction and control, and is, therefore, an employee.



4. Do you personally do all the work? 
An employee renders services personally. Contractors may subcontract work.



5. Can you hire help? 
An independent contractor can hire, supervise and pay their own assistants under a contract that requires him or her to provide materials and labor and to be responsible only for the result.



6. Is it a marriage, or are you just flirting? 
An employee generally has an ongoing relationship with an employer. This relationship may exist even if work is performed at recurring, although irregular, intervals.



7. Set hours of work
? An employee usually has set hours of work established by an employer. An independent contractor generally can set his or her own work hours. 



8. Are you all theirs? 
An employee may be required to work or be available full-time. Ah yes, remember it’s about the control. An independent contractor can work when and for whom s/he chooses.


9. Work done on premises? 
An employee usually works on the premises of, or at a location determined by, an employer.



10. They’ll have it their way.
 An employee usually does their job in the way their employer wants it done. This shows that the employee is subject to direction and control.



11. Show me the paper.
 Status reports, budgets, timecards (and other tedious paperwork), are all ways in which employers maintain control and oversight of employees and suggest that demanding regular reports is another indication that you’re an employee, not an independent contractor.



12. Show me the money. 
Employees are usually paid regularly by the hour, week, or month. An independent contractor is usually paid by the job or on a straight commission.



13. Who picks up the tab?
 An employee’s business and travel expenses are generally paid by their employer.  Independent contractors typically submit expenses as part of their bill.



14. Whose stuff are you using? 
Employees normally are provided significant tools, materials, and other equipment by employers. For freelance artists, this most often refers to your computer. Do you bring yours, or do they provide one? It’s a key determinant to the IRS of whether or not you’re an employee.



15. How much do you have invested in your business? 
An independent contractor has a significant investment in the tools (again, your computer, for example) s/he uses in performing services for someone else.



16. Can you make a profit or suffer a loss? 
An independent contractor can make a profit or suffer a loss. You’re not just tied to the hourly wage (sometimes).


17. Do you work for more than one person or firm? 
An independent contractor generally provides his or her services to two or more unrelated persons or firms at the same time.



18. Can you work for anyone? 
An independent contractor makes his or her services available to the general public.



19. Can they fire you? 
An employee can be fired by an employer. An independent contractor cannot be fired as long as s/he meets the specifications of the contract.



20. Can you quit?
 An employee can quit his or her job at any time without consequences. An independent contractor usually agrees to complete a specific job and is responsible for its satisfactory completion.

Form SS-8

If there’s any doubt, the facts determine whether or not there is an actual employer-employee relationship. If you want the IRS to determine whether a worker is an employee, file Form SS-8: “Determination of Employee Work Status for purposes of Federal Employment Taxes and Income Tax Withholding,” with the District Director.


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Contractors, Copyright & Licensing: May I Promote Work I Did for Someone Else?
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