Independent Contractor Versus
Common Law Rules
To determine whether an individual is an employee or an independent
contractor under the common law, the relationship of the worker
and the business must be examined. All evidence of control and
independence must be considered. In any employee-independent contractor
determination, all information that provides evidence of the degree
of control and the degree of independence must be considered. Facts
that provide evidence of the degree of control and independence
fall into three categories:
Facts that show whether the business has a right to direct and
control how the worker does the task for which the worker is hired
include the type and degree of instructions and training.
- Instructions the business gives the
worker. An employee is generally subject to the business'
instructions about when, where, and how to work.
- When and where to do the work
- What tools or equipment to use
- What workers to hire or to assist with the work
- Where to purchase supplies and services
- What work must be performed by a specified individual
- What order or sequence to follow
The amount of instruction needed varies among different jobs. Even if
no instructions are given, sufficient behavioral control may exist if the
employer has the right to control how the work results are achieved. A
business may lack the knowledge to instruct some highly specialized professionals;
in other cases, the task may require little or no instruction. The key
consideration is whether the business has retained the right to control
the details of a worker's performance or instead has given up the that
- Training the business gives the worker. An
employee may be trained to perform services in a particular manner.
Independent contractors ordinarily use their own methods.
Facts that show whether the business has a right to control the
business aspects of the worker's job:
- The extent to which the worker has unreimbursed business
expenses. Independent contractors are more likely
to have unreimbursed business expenses than are employees.
Fixed ongoing costs that are incurred regardless of whether
the work is currently being performed are especially important.
However, employees may also incur unreimbursed expenses in
connection with the services they perform for their business.
- The extent of the worker's investment. An
independent contractor often has a significant investment in
the facilities he or she uses in performing services for someone
else. However, a significant investment is not necessary for
independent contractors status.
- The extent to which the worker makes services available
to the relevant market. An independent contractor
is generally free to seek out business opportunities. Independent
contractors often advertise, maintain a visable business location,
and are available to work inthe relevant market.
- How the business pays the worker. An employee
is generally guaranteed a regular wage amount for an hourly,
weekly, or other period of time. This usually indiciates that
a worker is an employee, even when the wage or salary is supplemented
by commission. An independent contractor is usually paid by a
flat fee for the job. However, it is common in some professions,
such as law, to pay independent contractors hourly.
- The extent to which the worker can realize a profit
or loss. An independent contractor can make a profit
Facts that show the parties' type of relationship include:
- Written contracts describing the relationship the parties
intend to create.
- Whether the business provides the worker with employee-type
benefits, such as insurance, a pension plan, vacation pay,
or sick pay.
- The permanency of the relationship. If you
engage a worker with the expectation that the relationship will
continue indefinitely, rather than for a specific project or
period, this is generally considered evidence that your intent
was to create an employer-employee relationship.
- The extent to which services performed by the worker
are a key aspect of the regular business of the company. If
a worker provides services that are a key aspect of your regular
business activity, it is more likely that you will have the
right to direct and control his or her activities. This would
indicate an employer-employee relationship.