INDEPENDENT CONTRACTORS
Or
Are They Really Your Employees?
If control by
the company or employer can be demonstrated in any of the following 20 areas, then the
governing authority will almost certainly find that an employer/employee
relationship exists. The few narrow exceptions recognized by statute include
real estate agents, certain “direct sellers” and fishermen.
While the
20-factor test is a measure of independent contractor status, many states have
the definition of “employee” or “independent contractor” within workers
compensation statutes or other separate laws dealing with employment. Agents
need to know these definitions and their implications as well.
20-Factor Test
1.
Instructions – Is the person
required to comply with instructions about when, where, and how the work is to
be done? If a person is required to comply with instructions as to when and how
to perform the work, that person is generally considered an employee.
2.
Training – Is the person
provided training? Did the individual receive training by another experienced
employee working with him or her? Training typically points to employee status,
since it indicates that the employer wants the services to be performed in a
particular manner and is exerting considerable control.
3.
Integration – Are the services
for the operations of the company? The more integrated the individual’s task
is, the more likely the company has control – making the individual an employee.
4.
Service Rendered Personally –
Are the services provided personally by the individual? If the service must be
rendered by a particular individual, then the employer likely has control,
meaning the service provider is likely an employee.
5.
Hiring, Supervising, and Paying
Assistants – Does the company hire, supervise, or pay assistants to
help the person? If the company controls these activities, employee status is
indicated.
6.
Continuing Relationship – Is
there a continuing relationship between the person and the company? An ongoing
relationship with an individual in a company tends to indicate the existence of
an employer/employee relationship.
7.
Set Hours of Work – Does the
company set the work schedule? If the company can set specific work hours when
the individual must be “on the job”, the individual is most likely an employee.
8.
Full Time Required – Does the
person devote his/her full work time to the company? If the company requires an
individual to devote full time to the business, that individual will be
considered an employee.
9.
Location of Work – Is the work
performed at the company’s place of business or at specific places designated by
the company? Control is the key word. Control over the place of work – on
company premises or a site determined by the company – indicates an
employer/employee relationship.
10. Order
or Sequence or Work – Does the company direct the sequence of the
work performed? If the employer can set the sequence in which services are to
be performed, then control is being exercised – and the individual providing
services is an employee.
11. Oral
or Written Reports – Are reports regularly given to the company? If
oral or written reports are required by the company, then control and an
employer/employee relationship is indicated.
12. Payment
by Hour, Week, or Month – Is the person paid hourly, weekly, or
monthly (as opposed to “by the job”)? An independent contractor is normally
paid by the job or on a commission basis, rather than on a schedule or by a
guaranteed amount.
13. Payment
of Business and/or Traveling Expense – Does the company reimburse the
person for business or travel expense? The fact that the “employer” will pay
for an individual’s work related expenses is indicative of control – and
employee status.
14. Tools
and Materials – Does the company supply materials or tools to the
person? Providing tools and materials to an individual suggests that a company
is also exercising control, which again means that the individual is an
employee.
15. Significant
Investment – Does the person have equipment or facilities to perform
services? If an individual has significant personal investment in facilities or
equipment, that person is likely to be an independent contractor.
16. Profit
or Loss Potential – Is there an exposure to loss, or the potential of
profit for the individual? A person who is in a position to realize a profit or
suffer a loss as a result of the service provided is more than likely an
independent contractor.
17. Working
for More than One Firm – Does the person work exclusively for the
company? If an individual works for more than one company at the same time, the
person is normally an independent contractor.
18. Making
Service Available to the General Public – Does the individual in
question make his services available to the public at large? Advertising to the
general public the availability to perform a particular service normally
indicates an independent contractor.
19. Right
to Discharge – Can the worker be dismissed for reasons other than
non-performance of contract specifications? The right to discharge an
individual is clearly an act of control and is indicative of an
employer/employee relationship.
20. Right
to Terminate – Can the person terminate his relationship with the
company without liability for failure to complete the job? Employees can
usually terminate the relationship with the employer at any time without
incurring any liability. An independent contractor normally has obligations to
complete specific jobs or a legal obligation to satisfactorily perform a
particular service.
Courtesy “Resources” / Fall
1998
