Employee or Sub-Contractor?
According to the IRS three categories help determine if someone is an employee or a sub-contractor.
The IRS looks at the level of control exercised over a worker in the following three categories.
1. Behavioral control:
Instructions that the business gives to the worker, such as; 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.
- Training that the business gives to the worker.
2. Financial control:
- The extent to which the worker has un-reimbursed business expenses. Independent contractors are more likely to have un-reimbursed expenses than are employees.
- How the company pays the worker. An employee is generally guaranteed a regular wage amount for an hourly, weekly.
- An independent contractor is usually paid by a flat fee for the job.
- The extent to which the worker can realize a profit or loss.
3. The relationship between the parties.
- Whether or not the company provides the worker with employee-type benefits.
- If the worker has the expectation that the relationship will continue indefinitely, rather than for a specific project or period.
- If a worker provides services that are a key aspect of your regular business activity.
- When looking at these categories they consider the the amount of instruction needed varies among different jobs,
- The more a company directs a person in these three categories the more likely they will be considered an employee.
A sub-contractor should be doing the following:
- Advertise their own services [business cards, website, job signs, truck lettering, etc]
- Have and use their own tools.
- Performs work for numerous other businesses.