Tax Tip: Three Tests to Classify Workers

October 24th, 2017

picTo classify workers, IRS uses three tests, each made up of multiple factors.

  1. The behavioral test focuses on whether the company controls or has the right to control what the worker does and how to do the job. Key factors for employee status include instructions about performing the work, evaluation criteria and training.
  2. The financial test looks at who controls the economics of the worker’s job. Being able to work for multiple firms and providing your own tools needed for the job are indicative of independent contractor status. Some factors favoring employee status are eligibility for reimbursement of travel costs and payment based on hours worked.
  3. The type-of-relationship test examines how the parties perceive each other. Providing paid vacation and retirement benefits indicates a worker is an employee, as does hiring to provide services indefinitely rather than for a specific time period. Written language stating the worker is an independent contractor isn’t determinative.

Let us know if you have any questions.

Leave a Reply