Behavioral Control

• If you control how, where and when the work must be done, who the worker must hire for assistance, where she must purchase supplies or obtain services or which equipment she must use, the worker is your employee. Similarly, If you provide training for the worker, she may be your employee in the eyes of the IRS.
  
  Alternatively, an independent contractor chooses her own methods and tools, creates her own work schedule and uses her own suppliers. Your control is limited to the right to determine what the final result should be, not the details of obtaining that result.
  
  

Financial Control

• Although an hourly employee may incur work-related expenses for which you issue no reimbursement, an independent contractor may also have fixed expenses that he must pay whether he is currently working or not. A contractor may have a substantial investment in his tools or equipment, although his investment alone is not sufficient to declare that he is a contractor. The IRS may use the amount of his investment in determining his status. A contractor may advertise for business, maintain a primary place of business and offer his services to other businesses, and he may lose money on the job or make a profit. You may pay a contractor an hourly rate, but you may also pay him a fixed amount or on a materials-plus-fee basis.
  
  

Relationship

• If you provide fringe benefits for the worker, such as health insurance, sick leave, vacation time or a pension plan, she is likely your employee. If you hire her for an indefinite period, the IRS may rule she is your employee, as contractors typically work for a definite period or to complete a specific task. If the worker's services are a key component of your company's business activities, the IRS believes you are likely to retain the right to control and direct her activities, making her your employee.
  
  

Statutory Employees

• In addition to the three primary determinants of an employee, the IRS considers certain workers as statutory employees for the purpose of unemployment, Social Security and Medicare taxes. Drivers who deliver beverages, except milk; food; dry cleaning; or laundry for you as your agent or in return for a commission are statutory employees. A full-time salesperson offering insurance from one primary company is a statutory employee. If you hire someone to work from home, furnish his materials and control the finished product, he is a statutory employee. A salesperson who is not a commission-driver or agent-driver, whose full-time job is obtaining orders from businesses involved in the lodging or food industry, is also a statutory employee.