concern about the misclassification of employees as independent contractors with adverse effects on collection of employment and unemployment taxes and on lack of income tax withholding at both state and federal level. The Internal Revenue Service generally applies a “right to control” test to determine employee or independent contractor status. If the business owner has the right to control the method and manner of performance and the means of accomplishing the result, the worker is most likely an employee. This control breaks down into three pieces: behavioral control, financial control, and the relationship between the parties. Behavioral Control • Instructions. A worker who is required to comply with another person’s instructions about when, where, and how he or she is to work is ordinarily an employee. • Training. Training a worker to perform services in a particular manner generally indicates employee status. Financial Control • Payment of business and/or traveling expenses. If the employer pays the worker’s business and/or traveling expenses, this factor weighs heavily in favor of an employer-employee relationship. Independent contractors are more likely to have unreimbursed business expenses. • Payment for services. An employee is generally compensated with a regular wage amount for an hourly, weekly, or other period of time. An independent contractor is often paid a flat fee or on a time and materials basis for a job. • Investment. If the employer furnishes significant tools, materials, and other equipment, this tends to show the existence of an employment relationship. An independent contractor typically has a significant investment in the facilities and tools he or she uses in performing services for someone else.
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