Employee or Independent Contractor? Revised Guidelines.

Three old truck drivers were sitting around debating the most impressive technical advance of the past 100 years. Driver one made a case for the Apollo Space program-landing a man on the moon. Driver two made the case for the eradication of Small Pox-a disease responsible for millions of deaths. Driver three mostly listened, but when finally persuaded to name his choice responded with "The thermos." Drivers one and two were dumbfounded. "A thermos!" they demanded, "Why?!"
Well, replied driver three, "It keeps hot stuff hot, cold stuff cold. How do it know? How do it KNOW?!"

As a driver, the IRS is going to classify you as an employee or an independent contractor. How do it know? There used to be a 20 question test, but the IRS recently attempted to simplify and refine the test, consolidating the twenty factors into eleven main tests, and organizing them into three main groups: behavioral control, financial control, and the type of relationship of the parties

BEHAVIORAL CONTROL

These facts show whether there is a right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done - as long as the employer has the right to direct and control the work. For example:

Instructions - if you receive extensive instructions on how work is to be done, this suggests that you are an employee. Instructions can cover a wide range of topics, for example:

• how, when, or where to do the work_ what tools or equipment to use
• what assistants to hire to help with the work
• where to purchase supplies and services

If you receive less extensive instructions about what should be done, but not how it should be done, you may be an independent contractor. For instance, instructions about time and place may be less important than directions on how the work is performed

Training - if the business provides you with training about required procedures and methods, this indicates that the business wants the work done in a certain way, and this suggests that you may be an employee.

FINANCIAL CONTROL

These facts show whether there is a right to direct or control the business part of the work. For example:

Significant Investment - if you have a significant investment in your work, you may be an independent contractor. While there is no precise dollar test, the investment must have substance. However, a significant investment is not necessary to be an independent contractor.

Expenses - if you are not reimbursed for some or all business expenses, then you may be an independent contractor, especially if your un-reimbursed business expenses are high.

Opportunity for Profit or Loss - if you can realize a profit or incur a loss, this suggests that you are in business for yourself and that you may be an independent contractor.

RELATIONSHIP OF THE PARTIES

These are facts that illustrate how the business and the worker perceive their relationship. For example:

Employee Benefits - if you receive benefits, such as insurance, pension, or paid leave, this is an indication that you may be an employee. If you do not receive benefits, however, you could be either an employee or an independent contractor.

Written Contracts - a written contract may show what both you and the business intend. This may be very significant if it is difficult, if not impossible, to determine status based on other facts.

Whether you are an employee or independent contractor is an importantdistinction. Worker classification affects how youpay your federal income tax, social security and

Medicare taxes, and how you file your tax return. Classification affects your eligibility for employer and social security and Medicare benefits and your tax responsibilities. If you aren't sure of your work status, you should find out now.