How Do I Know Whether I Am An Employee Or An Independent Contractor?
The Internal Revenue Service has provided guidelines to help you decide whether you are an employee or an independent contractor. Unfortunately, there are so many variables to every job that there are no hard and fast rules about one or the other. To help you understand the relationship you have with your employer and discern whether you may be an employee or an independent contractor, take a look at this table:
| Employee | Independent Contractor | ||
| Instructions on your tasks | You are told when and where to do the work, what tools to use, who to hire, where to purchase supplies and services, who does what work, and what sequence to follow when performing the work. | You have some or complete autonomy and decision-making authority on when, where and how the work is performed. | |
| Degree of instruction | You receive detailed instructions and your employer controls how your work results are achieved. | You receive little to no instruction where the employer relies on your expertise and judgment to complete the work. | |
| Evaluation system | Your performance is measured by the employer with special attention paid to the details of how the work is performed. | Your performance is measured usually by just the end result and whether you accomplished the work goal. | |
| Training | Your employer provides you with training and wants the job done a particular way, especially if the training is periodic or ongoing. | You handle your own training and furtherance of your knowledge base by attending seminars, workshops and courses for which you cover 100% of the expense and are responsible for scheduling. | |
| Significant investment | Your employer provides you the equipment to perform your job in most cases. Some jobs require you to provide your own equipment but you may still be classified as an employee. | You have paid for the equipment you use out of your own pocket and are liable for replacing it if it fails. The amount paid doesn’t matter as there are no dollar limits. | |
| Reimbursed expenses | Your employer is more likely to reimburse you for expenses you incur as a matter of course in performing your job. | You are more likely to have to cover your own expenses incurred in the performance of your job. | |
| Opportunity for profit/loss | Your employer generally will cover your equipment and expenses so your financial investment is usually next to nothing, so you risk losing next to nothing. | Having to purchase your own equipment and cover your own expenses, you have a greater opportunity to lose money in the course of performing your work. | |
| Services available to others | Usually, your employer prevents you from working for a rival during the time you are employed with them. You don’t necessarily advertise or maintain a business location. | You are free to seek other business opportunities in your market, even if they are direct competitors of your employer, unless you’ve signed an agreement otherwise. You may advertise your services and you may maintain a visible business location. | |
| Method of payment | You earn a wage or salary usually set by the employer for a particular period of time, even if the wage is supplemented by a commission. | You earn a flat fee for the job or an hourly fee that you set and to which the employer agrees to retain your services. | |
| Written contracts | Your employer may have you sign a contract that states you are an independent contractor while you are required to perform your work as an employee. This contract does not determine your status; only the working relationship does. | Your employer may have you sign a contract that states you are employee while you are required to perform your work as an independent contractor. This contract does not determine your status; only the working relationship does. | |
| Benefits | You may get employer-provided insurance, pension plan, paid vacation, sick days, and disability insurance. However, lack of these benefits does not necessarily mean you are in independent contractor. | You generally must purchase your own insurances and pension plans and you do not get paid vacation or sick days. | |
| Permanency | You were probably hired with the expectation that the relationship will continue indefinitely until either you or your employer take action to end it. | You were probably hired for a specific project or period of time and the relationship usually ends when the project does, unless you and the employer decide to renew your services for a new time frame/project. | |
| Services as Key Business Activity | The work you perform is a key activity of the employer’s business and thus the employer has the right to control your activities at work. | The work you perform is a specialized or niche aspect of the business and thus the employer will rely on you to perform the work as supplement to the key activities of the business. |
If your employer has knowingly been treating you as an employee when you believe you are an independent contractor, or vice versa, you may encounter issues with income taxes, licensing, overtime, back pay, and IRS review or audits. You can see more information at the Independent Contractor/Employee page at www.irs.gov.
Henrichsen Siegel can help you determine which IRS classification applies to your position and whether your employer is liable for this misclassification. Contact us today to resolve this matter and ease your mind. We represent clients in Washington, DC, Maryland, Virginia, Florida and Georgia.
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