TOOL IRS Information on Using Independent Contractors

The IRS provides employers with a resource page containing information on properly determining whether workers are independent contractors or employees. Within the page, you’ll find these resources and others:

Presentation on Proper Worker Classification
The IRS’ Rick Schampers presents information on what the law says in general about the factors and situations that indicate a worker should be treated as an employee and the situations that indicate workers should be treated as independent contractors. For the transcript, click here. For the audio, click here.

IRS Internal Training: Employee/Independent Contractor
This manual provides tools to make correct determinations of worker classifications. It discusses facts that may indicate the existence of an independent contractor or an employer-employee relationship. This training manual is a guide and is not legally binding.

Evidence of control: Examples and discussion
The IRS looks to three categories of evidence that show degree of control and independence:

1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

2. Financial: Are the business aspects of the worker’s job controlled by the payer? (How is the worker is paid? Are expenses reimbursed? Who provides tools/supplies?)

3. Type of relationship: Are there written contracts or employee-type benefits (i.e. pension plan, insurance and vacation pay)? Will the relationship continue and is the work performed a key aspect of the business?

Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding

If, after reviewing the three categories of evidence, it is still unclear whether a worker is an employee or an independent contractor, Form SS-8 can be filed with the IRS. The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.