Don't HR Alone #47 - Independent Contractor Classification


IRS Factor Explanations

Internal Revenue Service (IRS) Revenue Ruling 87-41 contains factors, commonly referred to as the 20 common law factors, that are used to assess whether a worker is an employee or an independent contractor for employment tax purposes. Although this revenue ruling is still valid today, the IRS has grouped the more relevant ones into the following three main categories of evidence that show whether a worker is an employee or independent contractor:

  • Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training, or other means.

  • Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.

  • Type of Relationship covers facts that relate to how the worker and the business owner perceive their relationship.

In each case, employers must consider all the facts and factors because no single fact will provide an absolute determination as to whether a worker is an independent contractor or an employee.

Behavioral Control

1. Is the worker required to comply with your instructions about when, where, and how his or her services are to be performed?