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A Guide to the Common Law Factors
Employee vs. Independent Contractor?
The 20 Common Law Factors have been
used by verious taxing authorities as a guideline when determining
if sufficient control is present to establish an employer-employee
relationship. This guide lists each factor and provides elements
characteristic of both employee and independent contractor. The
degree of importance of each factor varies depending on the occupation
and the scope of work being performed.
Under the common-law test, an employer-employee
relationship is present when the person for whom services are performed
has the right to control and direct the individual who performs
the services as to both:
A. The result
to be accomplished by the work, and
B. The details and methods used in achieving the
end result
It is not necessary that the hiring
firm overtly direct or control the means and methods by which a
result is to be accomplished - all that is required is that they
have the right to do so.
1. Do
you instruct the person as to when, where and how work is performed?
2. Did
you train the person to perform services in a particular way?
3. Are
the person's services vital to company operations?
4. Is
the person required to perform the work personally?
5. Is the person prohibited from hiring, supervising and paying assistants?
6. Does
the person perform regular and continuous services for you?
7. Do
you set the hours of work for the person?
8. Does
the person provide services on a substantially full-time basis to
your company?
9. Is
the work performed on your premises?
10. Do
you control the sequence or the order of the work performed?
11. Do
you require the person to submit regular oral or written reports?
12. Do
you pay the person by the hour, week or month?
13. Do
you pay the person's travel and business expenses?
14. Do
you furnish tools or equipment for the person?
15. Does
the person lack a "significant investment" in facilities,
tools or equipment?
16. Can
the person realize a profit or loss from his/her service to your
company?
17. Is
your company the sole or major source of income for the person?
18. Does
the person not make services available to the general public?
19. Do
you have the right to discharge the person at will?
20. Can
the person terminate the relationship without liability?
1.
Do you instruct the person as to when, where and how work is performed?
A worker who must comply with another person's instructions
about when, where and how he or she is to work is ordinarily an
employee. If the service recipient has the right to require compliance
with instructions, or require completion of a different scope of
work using specified guidelines, it is likely that an employer-employee
relationship exists.
| Employee |
|
Independent
Contractor |
| Must follow set and/or mandatory instructions, where, when, how to perform work. |
|
Follows own individual instructions. Performs work based upon independently established procedures or industry specs. |
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2.
Did you train the person to perform services in a particular way?
Training a worker to complete the task at hand or
requiring a worker to attend meetings and receive direction are
factors indicative of an employer-employee relationship. Training
a worker in specific methods indicates that the service recipient
wants the services accomplished in a certain manner. Voluntary uncompensated
training may not be an indication of an employer-employee relationship.
| Employee |
|
Independent
Contractor |
| Receives
and/or is required to receive training. |
|
Skilled professional
requiring no training to adequately perform services. |
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3.
Are the person's services vital to company operations?
When the success of a particular project is dependent
upon the performance of certain services, especially for a lengthy
period in an ongoing manner, the worker who performs these services
must be subject to a certain amount of control by the
service recipient. Integration of the worker's services into the
business operations generally shows that the worker is subject to
direction and control.
| Employee |
|
Independent
Contractor |
| Provides
essential services, which meld into overall business operation. |
|
Work performed
is not an "integral part," it is a "unique"
service. |
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4.
Is the person required to perform the work personally?
By requiring a worker to perform the contracted
services personally, presumably the service recipient is interested
in the means and methods used to accomplish the work in addition
to the results.
| Employee |
|
Independent
Contractor |
| Required
to render services personally. |
|
Has assistants
or employees while retaining the right to hire others to perform
the required work. |
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5.
Is the person prohibited from hiring, supervising and paying assistants?
If the service recipient supervises the hiring process
and paying of assistants, that factor generally shows control over
the workers on the job. However, if the worker performs the hiring,
supervision and pays assistants and is responsible only for the
attainment of a result, this factor is indicative of an independent
contractor.
| Employee |
|
Independent
Contractor |
| Required
to render services personally. |
|
Has assistants
or employees while retaining the right to hire others to perform
the required work. |
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6.
Does the person perform regular and continuous services for you?
A continuing relationship, not based on projects
between the worker and the person or persons for whom the services
are performed, indicates that an employer-employee relationship exists.
| Employee |
|
Independent
Contractor |
| Services
are part of a continuing relationship. |
|
Provides services
and contracts for separate and distinct projects, not on continuing
basis. |
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7.
Do you set the hours of work for the person?
Requiring the work to be performed at set hours
indicates control by the service recipient over the worker and is
indicative of an employer - employee relationship.
| Employee |
|
Independent
Contractor |
| Required
to work set hours. |
|
Retains right
to complete work at any time. |
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8.
Does the person provide services on a substantially full-time basis
to your company?
If the worker must devote a substantial amount of time (full-time)
to the business and is not working on a project basis, the worker
may be limited from performing services elsewhere and to some extent
is being controlled. An independent contractor is free to perform
work for other clients as he or she chooses.
| Employee |
|
Independent
Contractor |
| Required
to devote full-time to a job on a Non-project basis. |
|
Contract specifies
what is to be accomplished by what date. |
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9.
Is the work performed on your premises?
If the service recipient requires the worker to
perform the work onsite and the work could be done elsewhere, this
factor suggests control.
| Employee |
|
Independent
Contractor |
| Required
to work onsite, when alternatives exist. |
|
Rents/leases
location where work is performed. |
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10.
Do you control the sequence or the order of the work performed?
If a worker must perform services in the order or
sequence set by the service recipient, this factor shows that the
worker is not free to follow the worker's own pattern of work. The
worker should maintain this right. Adherence to an established industry
or technical standard is generally not regarded as control on the
part of the service recipient.
| Employee |
|
Independent
Contractor |
| Required
to perform task in set manner, routine and schedule. |
|
Has full discretion
over routine or manner in which to perform services. |
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11.
Do you require the person to submit regular oral or written reports?
Requiring the worker to submit regular oral or written
reports indicates a degree of control. Quality assurance checks
with no evaluation system may not indicate an employer-employee
relationship.
| Employee |
|
Independent
Contractor |
| Required
to submit regular oral and/or written work reports where work
is evaluated. |
|
Has few or no
obligations to file regular written and/or oral reports. |
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12.
Do you pay the person by the hour, week or month?
Payment by the hour, week, or month generally points
to an employer-employee relationship. Contracts structured with
payment made by the job or on a fixed fee basis indicates that the
worker is an independent contractor.
| Employee |
|
Independent
Contractor |
| A
person is paid at regular intervals. |
|
Compensation
determined separately by project or based on fixed fee. |
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13.
Do you pay the person's travel and business expenses?
Ordinarily employees are reimbursed for travel or
business related expenses. An employer, to be able to control expenses,
generally retains the right to regulate the worker's business activities.
An independent contractor incurs and pays travel and incidental
costs as part of his/her ongoing business expenses.
| Employee |
|
Independent
Contractor |
| Expenses
are paid or reimbursed. |
|
No reimbursement
for out-of-pocket expenses. |
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14.
Do you furnish tools or equipment for the person?
The furnishing of significant tools, materials and
other equipment, tends to reduce the workers risk of loss and lean
towards the existence of an employer-employee relationship.
| Employee |
|
Independent
Contractor |
| Tools
and materials are furnished. |
|
Furnishes own
tools and materials. |
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15.
Does the person lack a "significant investment" in facilities,
tools or equipment?
If the worker invests in facilities that are used
in performing services, that factor tends to indicate that the worker
is an independent contractor. Particularly if part of this investment
requires ongoing overhead or maintenance costs. Lack of investment
in facilities indicates dependence on the service recipient for
such facilities and accordingly, the existence of an employer-employee
relationship.
| Employee |
|
Independent
Contractor |
| Does
not invest in facilities and/or equipment used to perform work. |
|
Possesses and
invests in facilities and equipment to perform services. |
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16.
Can the person realize a profit or loss from his/her service to
your company?
A worker who can realize a profit or suffer a loss
as a result of performing the contracted services is generally an
independent contractor. Independent contractors are considered businesses.
A business inherently incurs certain financial risks and can realize
profits while employees do not.
| Employee |
|
Independent
Contractor |
| Compensated
for services at fixed rate regardless of profitability. |
|
Shoulders the
possibility of incurring a loss and realizing a profit. |
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17.
Is your company the sole or major source of income for the person?
Training a worker to complete the task at hand or
requiring a worker to attend meetings and receive direction are
factors indicative of an employer-employee relationship. Training
a worker in specific methods indicates that the service recipient
wants the services accomplished in a certain manner. Voluntary uncompensated
training may not be an indication of an employer-employee relationship.
| Employee |
|
Independent
Contractor |
| Performs
services for only one firm at a time, on a non-project basis. |
|
Has numerous
concurrent clients is not financially dependent on any one. |
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18.
Does the person not make services available to the general public?
The fact that a worker makes his or her services
available to the general public lends itself to independent contractor
status.
| Employee |
|
Independent
Contractor |
| Services
are not offered to general public, points toward control. |
|
Offers services
to public. |
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19.
Do you have the right to discharge the person at will?
An employer exercises control through the threat
of dismissal, which to some degree can cause the worker to comply
with the employer's instructions. An independent contractor, on
the other hand, cannot be fired so long as he or she produces a
result that meets the contract specifications.
| Employee |
|
Independent
Contractor |
| Can
be discharged at any time with no liquidated damages. |
|
Cannot be discharged
other than for failure to perform contracted service. |
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20.
Can the person terminate the relationship without liability?
If the worker has the right to end his or her relationship
with the service recipient at will and not incur a liability, that
factor indicates an employer-employee relationship.
| Employee |
|
Independent
Contractor |
| May
terminate relationship at any time. |
|
May terminate
his or her relationship only upon completion of contract or
breach by other party. |
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Phone: (800)-291-1099 Fax: (888)-693-1099
information@prounlimited.com
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