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IRS contends that over 300,000 employers improperly classify employees as independent contractors. Approximately 750 IRS revenue officers are conducting “special” audits to uncover misclassifications.

Why be an independent contractor?

  • For the employer-saves on employer’s share of payroll taxes, employee benefits, workman’s compensation insurance, increased unemployment tax rates, and payroll administration.
  • For independent contractor-makes own tax payments, deducts business expenses in full without Schedule A limitation, and may have a Keogh plan.

Note: The general rule with respect to an independent contractor is that the “employer” has the right to control only the result of the person’s work.

Here are the famous 20 factors of sufficient control to determine if the worker is an employee or Independent contractor:

  • Instructions-Employees are given instructions as to when, where and how to do their work.
  • Training-Independent contractors use their own methods. Employees are provided training that enables them to perform in a particular manner.
  • Integration-Employee’s services are integrrated into the business operations.
  • Services Rendered Personally-Employees can’t subcontract out work.
  • Hiring Assistants-Independent Contractor can hire, supervise, and pay his own assistants, Employees work with assistants hired by the company.
  • Continuing Relationship-Employees have a continuing relationship with employer.
  • Set hours of work-An Independent Contractor is the master of his own time. Employees follow a schedule set by their employer.
  • Full Time Work-Independent Contractor can work when he chooses.
  • Work Done on Premises-Employees work where designated by employer.
  • Order of Sequence set-Employees must work in the sequence set by the employer.
  • Reports-An employee submits reports to employer.
  • Payments-Independent Contractors are paid by the job or by output. Employees are paid by the hour/week/month.
  • Expenses-Employees are reimbursed by employer for business expenses.
  • Tools and Materials-Employees are furnished needed materials by employer.
  • Investment-Independent Contractor has a significant investment in the facilities he is using.
  • Profit or Loss-Independent Contractors earn a profit or loss. They take the risk and the reward.
  • Works for multiple firms-Independent Contractors provide their services to more than one person at the same time. Employees perform their services exclusively for one employer.
  • Offers services to general public-Independent Contractor makes his services available to the general public.
  • Right to Fire-Independent Contractor can’t be fired, so long as he is performing to specifications in his contract.
  • Right to quit-Employees can quit their job at any time without incurring liability for failure to complete a job.


This list looks impressive. Please don’t memorize these. They don’t always apply! For instance, if you look at Per Diem Accountants, at times, they certainly look like employees. There are industry-specific exceptions to this set of rules. It is common in the Accounting profession to pay by the hour. This does not make the worker an employee. There are other professions with exceptions. This is still a gray area in tax law, check with a professional concerning your profession.

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