How do I know if the individuals providing services are employees or independent contractors?
Deciding who is an employee and who is an independent contractor is a decision that a business must make. It is not one that can be made just because it will avoid payroll taxes or because issuing a 1099 makes the administration of the business simpler. The consequences of assigning the wrong classification can be very costly. IRS guidelines for making a good decision are based on the following common law rules.

Behavioral Control Factors
  • Does the company control or have the right to control what the worker does and how the worker does his or her job?
  • Type of instructions given
  • Degree of instruction
  • Evaluation systems
  • Training
Financial Control Factors
  • Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  • Significant investment
  • Unreimbursed expenses
  • Opportunity for profit or loss
  • Services available to the market
  • Method of payment
Type of Relationship
  • Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
  • Written contracts
  • Employee benefits
  • Permanency of the relationship
  • Services provided as key activity of the business