Contractors vs. Employees: The Full Set of Factors
In this article we list the full set of factors to consider when determining whether to classify your workers as independent contractors or employees. This list has been compiled by the Internal Revenue Service (IRS).
It’s a long list, but it will help you make sure you understand the difference between employees and contractors, and avoid worker misclassification.
You can also get an simplified overview of the topic from our article, Contractors vs. Employees: What You Need to Know.
Below we provide the exhaustive list of factors in an easy-to-read format, based on the original IRS PDF.
Factor 1: Instructions
If the person for whom the services are performed has the right to require compliance with instructions, this indicates employee status.
Factor 2: Training
Worker training (e.g., by requiring attendance at training sessions) indicates that the person for whom services are performed wants the services performed in a particular manner (which indicates employee status).
Factor 3: Integration
Integration of the worker’s services into the business operations of the person for whom services are performed is an indication of employee status.
Factor 4: Services Rendered Personally
If the services are required to be performed personally, this is an indication that the person for whom services are performed is interested in the methods used to accomplish the work (which indicates employee status).
Factor 5: Hiring, Supervision, and Paying Assistants
If the person for whom services are performed hires, supervises or pays assistants, this generally indicates employee status. However, if the worker hires and supervises others under a contract pursuant to which the worker agrees to provide material and labor and is only responsible for the result, this indicates independent contractor status.
Factor 6: Continuing Relationship
A continuing relationship between the worker and the person for whom the services are performed indicates employee status.
Factor 7: Set Hours of Work
The establishment of set hours for the worker indicates employee status.
Factor 8: Full Time Required
If the worker must devote substantially full time to the business of the person for whom services are performed, this indicates employee status. An independent contractor is free to work when and for whom he or she chooses.
Factor 9: Doing Work on Employer’s Premises
If the work is performed on the premises of the person for whom the services are performed, this indicates employee status, especially if the work could be done elsewhere.
Factor 10: Order or Sequence Test
If a worker must perform services in the order or sequence set by the person for whom services are performed, that shows the worker is not free to follow his or her own pattern of work, and indicates employee status.
Factor 11: Oral or Written Reports
A requirement that the worker submit regular reports indicates employee status.
Factor 12: Payment by the Hour, Week, or Month
Payment by the hour, week, or month generally points to employment status; payment by the job or a commission indicates independent contractor status.
Factor 13: Payment of Business and/or Traveling Expenses
If the person for whom the services are performed pays expenses, this indicates employee status. An employer, to control expenses, generally retains the right to direct the worker.
Factor 14: Furnishing Tools and Materials
The provision of significant tools and materials to the worker indicates employee status.
Factor 15: Significant Investment
Investment in facilities used by the worker indicates independent contractor status.
Factor 16: Realization of Profit or Loss
A worker who can realize a profit or suffer a loss as a result of the services (in addition to profit or loss ordinarily realized by employees) is generally an independent contractor.
Factor 17: Working for More than One Firm at a Time
If a worker performs more than de minimis services for multiple firms at the same time, that generally indicates independent contractor status.
Factor 18: Making Service Available to the General Public
If a worker makes his or her services available to the public on a regular and consistent basis, that indicates independent contractor status.
Factor 19: Right to Discharge
The right to discharge a worker is a factor indicating that the worker is an employee.
Factor 20: Right to Terminate
If a worker has the right to terminate the relationship with the person for whom services are performed at any time he or she wishes without incurring liability, that indicates employee status.