Docsity
Docsity

Prepare for your exams
Prepare for your exams

Study with the several resources on Docsity


Earn points to download
Earn points to download

Earn points by helping other students or get them with a premium plan


Guidelines and tips
Guidelines and tips

IRS and DOL Tests for Employee vs. Independent Contractor Determination, Exercises of Law

An overview of the irs common law test and the dol economic realities test used to determine whether a worker is an employee or an independent contractor. The tests focus on three categories (behavioral control, financial control, and relationship of parties) and six factors (integral part of business, managerial skills, relative investment, specialized skills and initiative, permanency of relationship, and nature and degree of employer control) respectively.

Typology: Exercises

2021/2022

Uploaded on 09/12/2022

mayer
mayer 🇬🇧

4.8

(5)

227 documents

1 / 2

Toggle sidebar

This page cannot be seen from the preview

Don't miss anything!

bg1
1 20170418
IRS Common Law Test for determination and classification as employee vs. independent contractor is organized into three major categories:
Behavioral Control: Who controls how the work is done?
BEHAVIORAL CONTROL
EMPLOYEE
INDEPENDENT CONTRACTOR
Instructions
An employer has the right to give an employee
instructions regarding how, when and where the work
is performed.
The client has a right to specify the parameters of the
deliverables; not the details of how, when and where the work
is performed.
Training
Employees are often trained to do their jobs.
Independent Contractors are hired for their expertise and
should receive no internal training.
Financial Control: Who controls the business aspects of the worker’s assignment?
FINANCIAL CONTROL
EMPLOYEE
INDEPENDENT CONTRACTOR
Significant Investment
Employers provide the tools and equipment necessary
for their employees.
Independent Contractors provide their own tools and
equipment.
Unreimbursed Expenses
Employees are reimbursed for any out-of-pocket
business expenses they might incur.
Independent Contractors pay their own business expenses.
Marketing
Employees do not market their services to public.
Independent Contractors market their services to the public.
Method of Payment
Employees are paid based upon the passage of time
guaranteed return for his/her labor.
Independent Contractors are generally to be paid upon the
completion of specific deliverables.
Opportunity for Profit/Loss
Employees generally have no opportunity for suffering
a loss.
Independent Contractors make business decisions that allow
them to not only make a profit but also have the opportunity to
suffer a loss.
Relationship of Parties: Worker’s and employer’s/purchaser’s type of relationship
RELATIONSHIP OF PARTIES
EMPLOYEE
INDEPENDENT CONTRACTOR
Intent of Parties
Expressed via employment contract; extent of
direction and control the employer requires over the
employee.
Expressed in a contract between the two parties; Independent
Contractor expresses his/her intent by fulfilling local and state
requirements for business (e.g., securing business license, etc.)
Employee Benefits
Employees are entitled to benefits such as vacation or
sick time, health care benefits and ability to attend
company sponsored events.
Independent Contractors provides his/her own benefits.
Termination
Within the confines of legal or contractual
requirements employees can be discharged at will by
the employer.
Contracts can only be terminated according to the
specifications of the contract. Non-performance on the part of
the contractor or client can lead to legal recourse.
Permanency of Relationship
Employer engages for indefinite period of time.
Specific services are for limited period of time.
Regular Business Activity
Employees perform services that are key aspects of
employer’s regular business activities.
Independent contractors perform services which do not affect
client’s bottom line. (limited exceptions)
pf2

Partial preview of the text

Download IRS and DOL Tests for Employee vs. Independent Contractor Determination and more Exercises Law in PDF only on Docsity!

IRS Common Law Test for determination and classification as employee vs. independent contractor is organized into three major categories:

Behavioral Control: Who controls how the work is done?

BEHAVIORAL CONTROL EMPLOYEE INDEPENDENT CONTRACTOR Instructions An employer has the right to give an employee instructions regarding how, when and where the work is performed.

The client has a right to specify the parameters of the deliverables; not the details of how, when and where the work is performed. Training Employees are often trained to do their jobs. Independent Contractors are hired for their expertise and should receive no internal training.

Financial Control : Who controls the business aspects of the worker’s assignment?

FINANCIAL CONTROL EMPLOYEE INDEPENDENT CONTRACTOR Significant Investment Employers provide the tools and equipment necessary for their employees.

Independent Contractors provide their own tools and equipment. Unreimbursed Expenses Employees are reimbursed for any out-of-pocket business expenses they might incur.

Independent Contractors pay their own business expenses.

Marketing Employees do not market their services to public. Independent Contractors market their services to the public. Method of Payment Employees are paid based upon the passage of time— guaranteed return for his/her labor.

Independent Contractors are generally to be paid upon the completion of specific deliverables. Opportunity for Profit/Loss Employees generally have no opportunity for suffering a loss.

Independent Contractors make business decisions that allow them to not only make a profit but also have the opportunity to suffer a loss.

Relationship of Parties : Worker’s and employer’s/purchaser’s type of relationship

RELATIONSHIP OF PARTIES EMPLOYEE INDEPENDENT CONTRACTOR Intent of Parties Expressed via employment contract; extent of direction and control the employer requires over the employee.

Expressed in a contract between the two parties; Independent Contractor expresses his/her intent by fulfilling local and state requirements for business (e.g., securing business license, etc.) Employee Benefits Employees are entitled to benefits such as vacation or sick time, health care benefits and ability to attend company sponsored events.

Independent Contractors provides his/her own benefits.

Termination Within the confines of legal or contractual requirements employees can be discharged at will by the employer.

Contracts can only be terminated according to the specifications of the contract. Non-performance on the part of the contractor or client can lead to legal recourse. Permanency of Relationship Employer engages for indefinite period of time. Specific services are for limited period of time. Regular Business Activity Employees perform services that are key aspects of employer’s regular business activities.

Independent contractors perform services which do not affect client’s bottom line. (limited exceptions)

DOL Economic Realities Test : Determination and classification of an employee vs. independent contractor is based on these six factors:

ECONOMIC REALITIES TEST FACTOR EMPLOYEE INDEPENDENT CONTRACTOR

  1. Whether the work is an integral part of the employer’s business. This factor is “compelling” per the DOL. Integral work includes: - Any work that is part of the mission of the University (e.g. education, research, and health care) - Work that is already performed by University employees in the normal course of business - Work that is regular and ongoing

If the work is integral, it is more likely that the worker is economically dependent on the employer

If the work is not integral, it is less likely that the worker is economically dependent on the employer.

  1. Whether the worker’s managerial skills affect the opportunity for profit or loss.

Worker has no opportunity to increase profit except by increasing hours.

Worker hires others; purchases materials and equipment for the job; advertises; rents spaces; manages timetables

  1. The relative investment of the worker and the employer Worker is economically dependent on payments from the University.

Worker is NOT economically dependent on payments from the University.

  1. Whether the work performed requires special skills and initiative

The DOL does not consider specialized skills unless they indicate that a worker is in business for himself/herself.

The DOL only considers business skills, business judgment and business initiative as relevant to independent contractor status.

  1. Whether a working relationship is permanent or indefinite Permanency or indefiniteness suggests the worker is an employee.

Independent contractors are not permanent and should not have an indefinite term.

  1. The nature and degree of the employer’s control
    • This factor should be analyzed in light of the ultimate determination of whether the worker is economically dependent on the employer.

Controlling one’s hours, working at home, and having little supervision are common for employees.

An independent contractor controls meaningful aspects of the work performed, and must conduct his or her own business.