The Twenty (20) Common-Law Factors Determining
Employee
or
Common-Law Independent Contractor Status.

The Internal Revenue Service has enumerated twenty (20) factors in Revenue Ruling 87-41 which it considers in determining whether individuals are employees or common-law independent contractors for federal tax purposes.    The degree of importance of each factor depends on the occupation and is case specific.   When evaluating each of these twenty (20) factors in light of your office practices, remember that a "yes" for a factor weighs in favor of assessing a worker an employee.   The twenty (20) factors below:

1.         Instructions.
Is the worker required to comply with the employer's instructions?  A worker who is required to comply with other persons' instructions about when, where, and how he is to work is ordinarily an employee.   This control factor is present if the person for whom the services are performed has the right to require compliance with instructions.

2.         Training. 
Is the worker required to receive training from the employer?  Training a worker by requiring an experienced individual to work with him or by requiring the worker to attend meetings, or by using other methods, indicates that the services are to be performed in a particular method or manner.

3.         Integration.  
Does the worker provide services that are integrated into the business?  Integration of the worker's services into the business operations generally shows that the worker is subject to direction and control.   When the success or continuation of a business depends on the performance of certain services, the workers who perform those services are generally subject to a certain amount of control by the owner of the business.

4.         Services Rendered Personally. 
Must the worker personally perform the services?  If the services must be rendered personally, an employer-employee relationship is assumed.

5.         Hiring, Supervising and Paying Assistants. 
Does the worker hire, supervise and pay assistants for the employer?  If the person for whom the services are performed hires, supervises and pays assistants, it generally demonstrates control.   However, if one worker hires, supervises and pays the other assistants pursuant to a contract under which the worker agrees to provide materials and labor and under which the worker is responsible only for the attainment of a result, this factor indicates an independent contractor status.

6.         Continuing Relationship.  
Does the worker have a continuing relationship with the employer?  A continuing relationship between the worker and the person for whom the services are performed indicates an employer-employee relationship.   A continuing relationship may exist where work is performed at irregular intervals if they are recurring.

7.         Set Hours of Work. 
Must the worker follow set hours of work?  The establishment of set hours of work by the person for whom the services are performed is a factor indicating control.

8.         Full-Time Required. 
Does the worker work full-time for the employer?  If the worker must devote substantially full-time to the job, control over the amount of time the worker spends working is assumed and restricts the worker from other gainful employment.   Therefore, an employer-employee relationship is assumed.   An independent contractor, on the other hand, is free to work when and for who he or she chooses.

9.         Doing Work On Employer's Premises.
Does the work take place on the employer's premises?  If the work is performed on the premises of the person for whom the services are performed, that factor suggests control, especially if the work could be done elsewhere.   Work done off premises, such as at the office of the worker, indicates some freedom from control.   However, this fact by itself does not mean that the worker is not an employee.   Control over the place of work is indicated when the person for whom the services are performed has the right to compel the worker to travel a designated route or to canvass a designated territory.

10.       Order or Sequence Set.  
Does the worker have to follow a work sequence set by the employer?  If a worker must perform services in the order or sequence set by the person for whom the services are performed, that factor shows that the worker must follow established routines and schedules.   Often, because of the nature of an occupation, the person for whom the services are performed does not set the order of the services.   It is sufficient to show control, however, if the person has the right to do so.

11.       Oral or Written Reports.   
Does the worker have to submit regular reports?  A requirement that the worker submit regular or written reports to the person for whom the services are performed indicates a degree of control.

12.       Payment by Hour, Week, Month.  
Does the worker receive regular amount of compensation at fixed intervals?  Payment by the hour, week or month generally points to an employer-employee relationship, provided that this method of payment is not just a convenient way of paying a lump sum agreed upon as the cost of a job.   Payment made per job or on a straight commission basis generally indicates that the worker is an independent contractor.

13.       Payment of Business and/or Traveling Expenses.  
Does the worker receive payment for business and traveling expenses?  If the person for  whom the services are performed pays the worker's business and/or traveling expenses, the worker is ordinarily an employee.

14.      Furnishing of Tools and Materials. 
Does the employer furnish tools and materials?  The fact that the person for whom the services are performed furnishes significant tools, materials, and other equipment to do the job tends to show the existence of an employer/employee relationship.

15.       Significant Investment.
Has the worker invested in facilities used to perform the service?   If the worker invests in facilities that he uses in performing services which are not generally maintained by employees (such as the maintenance of an office rented at fair market value from an unrelated party), that factor tends to indicate that the worker is an independent contractor.   The lack of investment in facilities indicates dependence on the person for whom the services are performed and the existence of an employer-employee relationship.  

16.      Realization of Profit of Loss.
Can the worker make a profit or suffer a loss?  A worker who can realize a profit or suffer a loss is generally an independent contractor.   For example, if the worker is subject to a real risk of economic loss due to significant investments or liability for expenses, such as salary payments to unrelated employees, that factor indicates that the worker is an independent contractor.   The risk that a worker will not receive payment for his or her services, however, is common to both independent contractors and employees and thus does not constitute a sufficient economic risk to support treatment as an independent contractor.

17.       Working for More Than One Firm at a Time.
Can the worker work for more than one employer at a time?  If a worker performs more than de minimis services for a number of unrelated persons or firms at the same time, the worker is generally considered an independent contractors.

18.      Making Service Available to General Public.
Does the worker offer services to the public?  The fact that a worker make his or her services available to the general public on a regular and consistent basis indicates an independent contractor relationship.

19.       Right to Discharge. 
Can the worker be fired?  The right to discharge a worker is a factor indicating that the worker is an employee and the person possessing the right is the employer.   An employer exercises control through the threat of dismissal, which causes the worker to obey the employer's instructions.   An independent contractor, on the other hand, cannot be fired so long as the independent contractor produces the result that meets the contract specifications.

20.       Right to Terminate.
Can the worker quit without incurring liability?  If the worker has the right to end his or her relationship with the person for whom the services are performed at any time without incurring liability, an employer-employee relationship exists.

These are the factors the IRS has used when determining whether a real estate agent is an employee or common-law independent contractor.