PB Law Blog... Trusts and Stuff

Tuesday, June 20, 2017

Independent Contractor or Employee???

At first glance, it seems pretty clear cut. Independent contractors provide services to a company, but are not on the payroll, and (usually) bill for their time separately via invoice, like a vendor. Possibly, the most notorious denotation of an independent contractor is the tax responsibility. Instead of getting a W-2, like regular employees, independent contractors fill out a 1099 form. This allows the independent contractor to be paid at their rate (with no taxes taken out) and then they must account for their own payroll taxes in their personal tax schedule. Therefore, as an independent contractor, you operate as if you are your own business instead of an employee who operates as an agent of a business.

While this is all true, it can be difficult to determine if the individual is an actual employee or an independent contractor. The IRS looks to certain factors when deciding if an individual is an independent contractor or an employee. Simply said, an employer may not be able to call someone an independent contractor but manage them like an employee and vice versa.

The Test

When evaluating if an individual is an employee or independent contractor for tax purposes, the IRS uses a “Right to Control” test which includes 20 factors that are determinates for the relationship. Amount of training, degree of business integration, sequence of work, and method of payment are some examples of what factors the IRS look to in determining the relationship between employer and employee or independent contractor. All of these factors do not have to be met in order for a definite employee/independent contractor relationship to exist. The factors cited in the article include a broad range of tasks, provisions and rights to control.

The IRS provides a safe harbor for employers who have a reasonable basis to treat an individual as an independent contractor. The test encompasses, among other factors, court decisions or IRS rulings in similar circumstances that rule in favor of non-employee treatment or a letter or memorandum from the IRS specifying that the individual is not an employee.

Employers who question whether certain employees could be classified as independent contractors, can use IRS Form SS-8 to dial in on This form provides a basis for which an employer may look to when figuring out what the individual will be classified as. The employer may also send it to the IRS after the form is completed and the IRS will make a determination.

Remember this when hiring!

- Laura Bown

Law Clerk, Phillips Ballenger, PLLC/Juris Doctor Candidate, 2018, William S. Boyd School of Law, UNLV

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