Are you breaking the law by classifying employees as independent contractors? Your risk of a costly violation is high because there is no clear-cut definition of what constitutes an employee.
However, you may access two resources which cast light on how the government assesses employment status. The first is the U.S. Department of Labor’s “economic realities test” with its six employment status factors. (You can view an explanation of these factors by going to dol.gov and searching for “Fact Sheet 13: Am I an Employee?”)
The second resource is the Internal Revenue Service’s Form SS-8: “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.” You can find this document and related instructions by going to irs.gov and searching for “SS-8.”
Here are just a few of the areas covered by these documents. The more “yes” answers you make to the following questions, the greater the chances a given person is in fact an employee and not an independent contractor:
* Must the person follow your instructions as to how work is to be performed? Do you dictate that work be done in a certain sequence and require that reports be made of what steps were taken or work accomplished?
* Do you dictate what hours the person works, or even require the person spend all the working day on your property? And do you furnish the tools used for the work?
* Does the person work only for your business, and not offer services to the general public?
* Do you train the person in the work being performed? Do you require that the person perform the work personally?
* Are the worker’s services critical to the continuation of your business? And do you have a continuing relationship with the person?
* Do you make periodic payments by hour, week or month rather than in a lump sum for a project? Do you pay the person’s travel or other business expenses?