Independent Contractor Misclassification

  • Independent Contractor Misclassification

    In February, 2010, the IRS launched a nationwide initiative to examine 6,000 random companies nationwide in an effort to crack down on the misclassification of 1099 contract workers. Since it’s the employer’s responsibility to ensure contractors and employees are properly classified, it’s important to know you've done your due diligence to prevent placing your business at risk. 

    Express Employment Professionals has developed an informative webinar specifically designed to address the Independent Contractor (1099 employees).  This webinar will focus on the proper classification of contract workers, the consequences of misclassification, and what documentation you need to protect your business.  As you’ll learn in the video, New York State has this high on their radar screen.  

    View the webinar (running time - 10:44) 

    You can view the Twenty Factor Test via the IRS website.   Pages 3-5 provide more details on the test, but for your convenience, I have copied and pasted for you below.      

    The 20 factors identified by the IRS:  

    1. Instructions:  If the person for whom the services are performed has the right to require compliance with instructions, this indicates employee status. 

    2. Training:  Worker training (e.g., by requiring attendance at training sessions) indicates that the person for whom services are performed wants the services performed in a particular manner (which indicates employee status). 

    3. Integration: Integration of the worker’s services into the business operations of the person for whom services are performed is an indication of employee status. 

    4. Services rendered personally:  If the services are required to be performed personally, this is an indication that the person for whom services are performed is interested in the methods used to accomplish the work (which indicates employee status). 

    5. Hiring, supervision, and paying assistants:   If the person for whom services are performed hires, supervises or pays assistants, this generally indicates employee. 

    6. Continuing relationship:   A continuing relationship between the worker and the person for whom the services are performed indicates employee status.   

    7. Set hours of work:   The establishment of set hours for the worker indicates employee status. 

    8. Full time required:   If the worker must devote substantially full time to the business of the person for whom services are performed, this indicates employee status.  An independent contractor is free to work when and for whom he or she chooses.

    9. Doing work on employer’s premises:   If the work is performed on the premises of the person for whom the services are performed, this indicates employee status, especially if the work could be done elsewhere. 

    10. Order or sequence test:  If a worker must perform services in the order or sequence set by the person for whom services are performed, that shows the worker is not free to follow his or her own pattern of work, and indicates employee status. 

    11. Oral or written reports:   A requirement that the worker submit regular reports indicates employee status. 

    12. Payment by the hour, week, or month:  Payment by the hour, week, or month generally points to employment status; payment by the job or a commission indicates independent contractor status. 

    13. Payment of business and/or traveling expenses:   If the person for whom the services are performed pays expenses, this indicates employee status.  An employer, to control expenses, generally retains the right to direct the worker. 

    14. Furnishing tools and materials:   The provision of significant tools and materials to the worker indicates employee status. 

    15. Significant investment:   Investment in facilities used by the worker indicates independent contractor status. 

    16. Realization of profit or loss:   A worker who can realize a profit or suffer a loss as a result of the services (in addition to profit or loss ordinarily realized by employees) is generally an independent contractor. 

    17. Working for more than one firm at a time:  If a worker performs more than de minimis services for multiple firms at the same time, that generally indicates independent contractor status. 

    18. Making service available to the general public:  If a worker makes his or her services available to the public on a regular and consistent basis, that indicates independent contractor status. 

    19. Right to discharge:   The right to discharge a worker is a factor indicating that the worker is an employee. 

    20. Right to terminate:   If a worker has the right to terminate the relationship with the person for whom services are performed at any time he or she wishes without incurring liability, that indicates employee status.

    Contact us if you have questions, or would like more information on how we can help.