Mistakenly classifying an employee as an Independent Contractor can result in significant fines and penalties. The Internal Revenue Service (IRS) uses twenty factors to determine whether or not an employer has enough control over a worker in order for that individual to be classified as an employee. Designed only as a guideline, this checklist can help determine whether you possess enough control to demonstrate an employer-employee relationship:
â 1. Profit or loss. Can the worker make a profit or suffer a loss as a result of the work, aside from the money earned from the project? (This should involve real economic risk-not just the risk of not getting paid.)
â 2. Investment. Does the worker have an investment in the equipment and facilities used to do the work? (The greater the investment, the more likely Independent Contractor status.)
â 3. Works for more than one firm. Does the person work for more than one company at a time? (This tends to indicate Independent Contractor status, but is not conclusive since employees can also work for more than one employer.)
â 4. Services offered to the general public. Does the worker offer services to the general public?
â 5. Instructions. Do you have the right to give the worker instructions about when, where and how to work? (This shows control over the worker.)
â 6. Training. Do you train the worker to do the job in a particular way? (Independent Contractors are already trained.)
â 7. Integration. Are the workerâs services so important to your business that they have become a necessary part of the business? (This may show that the worker is subject to your control.)
â 8. Services rendered personally. Must the worker provide the services personally, as opposed to delegating tasks to someone else? (This indicates that you are interested in the methods employed, and not just the results.)
â 9. Hiring assistants. Do you hire, supervise, and pay the workerâs assistants? (Independent Contractors hire and pay their own staff.)
â 10. Continuing relationship. Is there an ongoing relationship between the worker and yourself? (A relationship can be considered ongoing if services are performed frequently, but irregularly.)
â 11. Work hours. Do you set the workerâs hours? (Independent Contractors are masters of their own time.)
â 12. Full-time work. Must the worker spend all of their time on your job? (Independent Contractors choose when and where they will work.)
â 13. Work done on premises. Must the individual work on your premises, or do you control the route or location where the work must be performed? (Answering no doesnât by itself mean Independent Contractor status.)
â 14. Sequence. Do you have the right to determine the order in which services are performed? (This shows control over the worker.)
â 15. Reports. Must the worker give you reports accounting for their actions? (This may show lack of independence.)
â 16. Pay Schedules. Do you pay the worker by hour, week, or month? (Independent Contractors are generally paid by the job or commission, although by industry practice, some are paid by the hour.)
â 17. Expenses. Do you pay the workerâs business or travel costs? (This tends to show control.)
â 18. Tools and materials. Do you provide the worker with equipment, tools or materials? (Independent Contractors generally supply the materials for the job and use their own tools and equipment.)
â 19. Right to fire. Can you terminate the worker? (An Independent Contractor cannot be fired without subjecting you to the risk of breach of contract lawsuit.)
â 20. Workerâs right to quit. Can the worker quit at any time, without incurring liability? (An Independent Contractor has a legal obligation to complete the contract.)
If you answer âyesâ to all of the first four questions, you are likely dealing with an Independent Contractor. Answering âyesâ to any question from numbers 5 through 20 means the worker more likely should be classified as your employee.
Note: The IRS recognizes that the importance of each factor depends on individual circumstances.
Clergy Financial Resources
Clergy Financial Resources is a national accounting and finance organization serving churches and clergy since 1980. They have an unparalleled tax expertise on the complex issues associated with clergy tax law, clergy taxes, clergy compensation and church payroll. Clergy Financial Resources is a valuable resource for clergy, churches and denominations.
Legal Disclaimer: This document is intended for informational purposes only, and does not constitute legal information or advice. This information and all Church HR Support Center materials are provided in consultation with federal and state statutes and do not encompass other regulations that may exist, such as local ordinances. Transmission of documents or information through the Church HR Support Center does not create an attorney-client relationship. If you are seeking legal advice, you are encouraged to consult an attorney.