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Independent contractor or employee? The 20-question IRS test

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in Small Business Tax

These 20 questions aren’t a game to trifle with. This list, designed to help you determine a worker’s classification, has evolved from various court cases and IRS rulings over the years. Most questions relate to the degree of control that you exert over the worker.

If you answer “Yes” to most of the questions, it generally indicates that the worker should be treated as a common-law employee. More “No” answers than “Yes” will favor independent contractor status.

Key point: The first few questions are the most decisive. For example, if you answer “No” to the first five questions, the worker is almost certainly an independent contractor, regardless of the answers to the remaining questions.

___ 1. Is there a continuing relationship between the worker and your company?
___ 2. Are the services required to be completed by a specific person?
___ 3. Does the worker receive instructions from you?
___ 4. Does the company supply the worker with tools and materials?
___ 5. Does the worker have any significant investment in the activity?
___ 6. Are payments based on time rather than completion of the job?
___ 7. Is the payment arrangement such that the worker cannot incur a financial loss?
___ 8. Does your company set the working hours?
___ 9. Does your company require a full-time commitment from the worker?
___ 10. Is your company the worker’s only significant client or customer?
___ 11. Does the worker forgo offering services to the public?
___ 12. Does the worker receive training from your company?
___ 13. Are the worker’s services integrated with your company’s business?
___ 14. Does your company employ assistants for the worker?
___ 15. Is the work performed on your company’s premises?
___ 16. Is the work performed according to a set sequence determined by your company?
___ 17. Does your company require the worker to submit reports?
___ 18. Does your company pay the worker’s business-related expenses?
___ 19. Do you have the right to fire the worker?
___ 20. Does the worker have the right to quit without penalty?

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