What Determines Whether a Worker is an Employee or a Consultant?

This is a critical issue for company executives and human resources managers to be well-versed in. The IRS has rather stringent guidelines, and violating those guidelines can mean extensive fines for both the consultant and the employing organization.

Here are some questions to ask in making the determination:

  1. Do you require your worker to comply with instructions about when, where and how the work is done?
  2. Do you provide your worker with training that enables him/her to perform a job in a particular method or manner?
  3. Is the work accomplished by your worker an integral part of your business's operations?
  4. Must your worker actually do the job himself or herself?
  5. Does your worker have assistants or employees under him/her that your company hires, supervises and pays for?
  6. Does your worker expect the job to continue as long as s/he performs his job competently? (I.e. the position is not project-based with a beginning and ending date).
  7. Does the company set the worker’s schedule?
  8. Does the company expect the worker to perform his/her job on a regular, on-going and/or full time basis?
  9. Does the company direct where the work will be performed?
  10. Does the company direct the sequence in which the work must be done?
  11. Must the worker provide regular oral or written reports to the company, or have productivity expectations?
  12. Is the worker paid by the hour, weekly or monthly (as opposed to commission or by the job)?
  13. Is the worker’s business and/or traveling expenses reimbursed?
  14. Does the company furnish tools and materials used by the worker?
  15. Does the worker expect the company to invest in the equipment or facilities used to provide the services? (Rather than the worker having to do so himself or herself.)
  16. Does the worker perform services exclusively for the company rather than working for a number of companies at the same time?
  17. Is the worker subject to dismissal for reasons other than non-performance of the contract specifications?
  18. Can the worker terminate his/her relationship without incurring a liability for failure to complete the job?

If the answers are mostly Yes, you have an employee and must engage that individual as an employee.

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