Industry Tax Guidelines

The IRS has compiled a set of 20 guidelines used in determining whether a consultant is a contractor or an employee. We have reprinted it for your information.

1. Instructions: A person 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.

2. Training: A person who requires job training by an experienced employee through correspondence with a worker or through attendance at meetings must be considered an employee.

3. Integration: Integration of the worker's services into the business operations generally shows that the worker is subject to direction and control and thus is an employee.

4. Personal Services Rendered: If the services must be rendered personally, presumably the person or persons for whom the services are performed indicate interest in the methods used to accomplish the work as well as the results. This person would be classified as an employee.

5. Hiring, Supervising and Paying Assistants: If the person, or persons, for whom the services are performed hire, supervise and pay the worker's assistants, that generally shows control over the workers on the job and constitutes employment.

6. Continuing Relationship: A continuing relationship between the worker and the person or persons for whom the services are performed indicates that an employer/employee relationship exists. A continuing relationship may exist where work is performed at frequently recurring, although irregular, intervals.

7. Set Hours of Work: The establishment of set hours for work by the person or persons for whom the services are performed is a factor indicating control and thus employment.

8. Full Time Requirement: If the worker must devote substantially full time to the business of the person or persons for whom the services are performed, such person or persons have control over the amount of time the worker spends working and thereby restrict the worker from doing other gainful work. That person would be deemed an employee.

9. Work on Employer's Premises: If the work is performed on the premises of the person or persons for whom the services are performed, that factor suggests control over the worker, especially if the work could be done elsewhere. That person would be considered an employee.

10. Order of Sequence Set: If the worker must perform services in an order of sequence set by the person or persons for whom the services are performed, that person would be considered an employee.

11. Reports (Written/Oral): A requirement that the worker submits regular or written reports to the person or persons for whom the services are performed indicated a degree of control and thus employment.

12. Term Payment: Payment by the hour, week or month generally points to an employer/employee relationship.

13. Payment of Business and/or Traveling Expenses: If the person or persons for whom the services are performed ordinarily pay the worker's business or traveling expenses, the worker is ordinarily classified as an employee.

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

15. Significant Investment: If the worker invests in facilities that are used by the worker in performing services and are not typically maintained by employees, that factor tends to indicate that the worker is not an employee.

16. Realization of Profit or Loss: A worker who can realize a profit or suffer a loss as the result of his services is generally a contractor, but the worker who cannot is an employee.

17. Working for More than One Firm at a Time: If a worker performs services for a number of unrelated persons or firms at the same time, that factor generally indicates that the worker is not an employee.

18. Services Available to the General Public: The fact that a worker makes his or her services available to the general public on a regular and consistent basis indicates that the worker is not an employee.

19. Right to Discharge: The right to discharge a worker is a factor indicating that the worker is an employee.

20. Right to Terminate: If the worker has the right to end his or her relationship with the person or persons for whom the services are performed at any time he or she wishes without incurring liability, that factor indicates an employer/employee relationship.