The IRS has developed the "20-Factor Test" (see the link below) to determine whether a worker is an employee or an independent contractor. Employers must provide certain benefits to their employees, including honoring workers' compensation requirements, withholding FICA (Federal Insurance Contribution Act) taxes (including Social Security and Medicare) and paying a portion of FICA taxes, and giving employees time off to vote. Some employers also provide employees with medical, dental, and other plans.
The "20-Factor...
The IRS has developed the "20-Factor Test" (see the link below) to determine whether a worker is an employee or an independent contractor. Employers must provide certain benefits to their employees, including honoring workers' compensation requirements, withholding FICA (Federal Insurance Contribution Act) taxes (including Social Security and Medicare) and paying a portion of FICA taxes, and giving employees time off to vote. Some employers also provide employees with medical, dental, and other plans.
The "20-Factor Test" includes such measures as whether a worker can choose his or her hours or has control over his or her work. Generally speaking, an independent contractor can choose his or her hours, while an employee cannot, and an employee is subject to direct control of the employer, while an independent contractor is not. In addition, workers who are trained by the employer are usually employees, while independent contractors do not require additional training. In addition, employees usually have set hours and often complete their work at the employment site, in addition to other requirements.
A hypothetical situation in which the "20 Factor Test" might come up is a company's use of salespeople. For example, a medical devices company decides to employ people to sell their medical devices to doctors' offices and hospitals. If the salespeople need training before they can sell, they might be employees. However, if the salespeople already have this expertise and do not need additional training, they are likely independent contractors. In addition, if the employer allows the salespeople to determine their own hours, the salespeople are more likely to be independent contractors. If the salespeople are required to work certain set hours each week, they are likely employees. If the salespeople can largely work off site, visiting doctors' offices and hospitals and not usually working at the medical device company, they are more likely to be classified as independent contractors than are people who must work from the office. If the salespeople are independent contractors, they would likely not receive reimbursement for traveling expenses and might make a profit or loss from their work. Employees are generally reimbursed for travel expenses and are paid by the hour, week, or month. These factors will determine whether the salespeople are employees or independent contractors.
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