Are You an Employee or An Independent Contractor?
According to the IRS website, a Form SS-8 is filed to request a determination of the status of a worker under the common law for purposes of employment taxes and tax withholding. The IRS states that the common law rule is that a worker is an employee if the business has the right to control what will be done and how it will be done.
“Under the [New York Labor Law], the critical inquiry in determining whether an employment relationship exists pertains to the degree of control exercised by the purported employer over the results produced or the means used to achieve the results. Relevant factors include whether the worker (1) worked at his own convenience, (2) was free to engage in other employment, (3) received fringe benefits, (4) was on the employer’s payroll and (5) was on a fixed schedule. A plaintiff’s tax status, while probative, is not determinative. Plaintiffs’ tax filings are plainly relevant to the independent contractor versus employee inquiries . . . but they do not preempt the inquiries altogether. Also relevant is the manner in which an individual is compensated: salary- and hourly-based wages are generally indicative of an employee relationship, while commission-based wages weigh in favor of an independent contractor relationship.” Griffith v. Fordham Fin. Mgmt., 2015 U.S. Dist. LEXIS 30869, 6-7 (S.D.N.Y. Mar. 12, 2015) (internal citations and quotations omitted)
According to the Employer’s Supplemental Tax Guide, published by the IRS, an examination of the relationship between the worker and the business determines how the worker is classified. All information providing evidence of the degree of control and independence must be considered.
The IRS breaks evidence down into three categories: Behavioral Control, Financial Control, and the Type of Relationship of the parties.
- Behavioral Control: Facts showing whether the business has the right to direct/control how the worker does the task they were hired to do. The key consideration is whether the business retains the right to control the details of a worker’s performance or has given up that right.
- Examples include instructions given to the worker about when and where to work, what equipment to use, who to hire for assistance, where to buy supplies, what order or sequence to follow
- Generally, employees are trained to do tasks a certain way, and independent contractors use their own methods
- Financial Control: Facts showing whether the business controls the business aspects of the worker’s job
- Examples:
- Extent to which the worker has unreimbursed business expenses – independent contractors usually do
- Extent of the worker’s investment – a significant investment is not necessary for independent contractor status
- Extent to which the worker is able to seek out alternate business opportunities and make their services available to the relevant market – independent contractors are generally able to advertise and work for other employers in the relevant market
- How the worker is paid – employee is guaranteed a regular wage amount, an independent contractor is often paid a flat fee or on a time/materials basis. Commission supplements on regular wages do not automatically make a worker an independent contractor
- Extent to which worker can realize a profit or loss – Independent contractor can make a profit or loss
- Examples:
- Type of Relationship: Facts showing the type of relationship include any written contracts describing the relationship the parties intend to create, whether or not the worker gets employee-type benefits from the business, permanency of the relationship (an indefinite engagement is generally evidence of an employee relationship), extent to which services performed by the worker are a key aspect of the regular business of the company
If you are an employer facing a Complaint made to the IRS by a worker regarding their working status, or a worker who is being categorized wrongfully by your employer, contact Francis P. Karam, Esq. PC today at (212)489-3900.