This is a question I’m often asked by clients.  Sometimes the answer is easy, other times, not so much.  I’d like to tell you that the rules are cut and dry; however, as with other issues in business, there are gray areas that make it difficult to determine.

The issues to consider include the following:

1. Behavioral Control:
   1. Do you determine when and where the worker works?
   2. Are you giving instruction on how to do the work?
   3. Do you evaluate how the work is performed (rather than just evaluating the end result)
2. Financial Control:
   1. Do you purchase all the equipment and supplies?
   2. Do you reimburse the worker for out of pocket expenses?
   3. Is the worker allowed to seek out other business opportunities in addition to working for you?
   4. Do you guarantee a regular wage?
3. Type of Relationship:
   1. Is there a written contract that specifies the employment type?
   2. Is the worker eligible for employee benefits?
   3. Will the relationship continue indefinitely?
   4. Are the services being provided a key aspect of the business?

If you have a situation that appears to be in the gray area, document your decision making – especially if you decide to treat the worker as an independent contractor.  The IRS website is actually very helpful in finding information for many business questions.  They have publications, questionnaires, checklists; you name it – all to help you make the right decisions.  You should also discuss your situation with a professional if you are unsure.

DON’T FOREGET – if you pay an independent contractor – you have to issue them a 1099 each year if you pay them over $600.  There are additional rules and exceptions here as well, but that is for another day.

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