The question of whether or not a particular worker is an Independent Contractor or an Employee is one that we frequently discuss with our clients. Unfortunately, there are no pat answers. The checklist below can help give you a better idea where you stand.
This is because there are several agencies that you have to deal with and because they don’t publish hard and fast rules, only guidelines. There are many factors involved and a wide variety of contracting situations.
That being said, there certainly are factors to consider. Keep in mind that not meeting any one item isn’t necessarily going to be the deciding factor. The table that follows comes from information in the IRS 20-factor test. The more statements that are true in one column or another regarding your relationship with the worker indicates whether the relationship leans towards Employment or Sub-contracting from the IRS point-of-view. From the perspective of the CA Contractors State Licensing Board (CSLB), item #13 is of particular importance. In general, the more weight you have on one side the stronger your case will be.
| An Employee usually | A Contractor usually | |
|---|---|---|
| 1 | has to follow your instructions as to when, where and how they work | can get the job done as he sees fit based on the contract |
| 2 | is trained by you | is already qualified to do the work |
| 3 | does the same work as your business | often is used to do specialized work you don’t normally do |
| 4 | can’t subcontract out work | can hire sub’s as needed |
| 5 | doesn’t hire assistants | can hire employees as needed |
| 6 | works for you over long or regular periods of time | does work for you sporadically |
| 7 | works for you at the hours you set | can set his own hours |
| 8 | is required to work full time | can work for whomever and whenever he wishes |
| 9 | works at your premises or at place you designate | usually has their own place of business |
| 10 | has to do their work in the order or sequence you specify | can decide sequence for themselves for the desired result |
| 11 | has to provide reports | does not have to account for themselves |
| 12 | is paid by the hour, week, or month | is paid by the job |
| 13 | doesn’t have to pay business and travel expenses | pays his own business and travel expenses |
| 14 | is provided tools, materials, or equipment | provides his own tools, materials and equipment |
| 15 | has little or no investment in his own tools and equipment | has a significant investment in tools and equipment |
| 16 | cannot suffer a loss | has the risk of a possible loss instead of a profit |
| 17 | works for you only | works for multiple customers, including you |
| 18 | doesn’t offer his services outside of your employ | offers his services out to the general public |
| 19 | can be fired at any time during a job | have limitations on firing per their contract |
| 20 | can quit work at any time without any liability | cannot walk away from a job without a financial risk |