• A worker who is required to comply with instructions about when, where, and how work is to be done is ordinarily an employee
• Contractors are not required to follow instructions to accomplish a job

• Training a worker indicates that the hiring firm wants the work done in a particular way
• Contractors typically do not receive training by the hiring firm

• Integration of the worker's services into the business operations generally shows the worker is subject to direction and control
• When the success or continuation of a business depends upon the performance of particular workers, those workers necessarily must be subject to a certain amount of control by the hiring firm
• Contractors should not perform work that determines the success or continuation of the hiring firm

• If the services must be rendered personally by the worker it is presumed that the hiring firm wants the work done in a particular way
• Contractors usually have the right to hire others to do the actual work

• If the hiring firm hires, supervises, and pays assistants for a worker, that factor generally shows control over the worker
• Contractors must have the authority to control their own assistants

• A continuing relationship between the worker and the hiring firm indicates that an employer-employee relationship exist
• Contractors usually work for the hiring firm at irregular intervals, on call, or whenever work is available

• The establishment of set hours of work by the hiring firm is a factor indicating control over the worker
• Contractors set their own hours of work

• If the worker must devote substantially full time to the business of the hiring firm, then the hiring firm controls the worker, and restricts the worker from doing other gainful work
• Contractors should not be restricted from seeking and performing other gainful work

• If the work is performed on the premises of the hiring firm, that factor suggests control over the worker, especially if the work could be done elsewhere
• Contractors control where they work. If contractors perform work on the premises of the hiring firm, the firm should not direct or supervise their activities

• If the hiring firm sets, or reserves the right to set, the order or sequence in which work is to be performed, that factor shows control over the worker
• Contractors determine the order and sequence of their work

• A requirement that the worker submit regular or written reports to the hiring firm indicates a degree of control
• Contractors are hired to produce a final result, and therefore should not be required to submit interim reports

• Payment by the hour, week or month generally points to an employer-employee relationship
• Payment made by the job or on a straight commission generally indicates that the worker is an independent contractor. Contractors may accept periodic payments based on a percentage of work completed, or some other fixed schedule determined before the job begins

• If the hiring firm ordinarily pays the worker's business and/or traveling expenses, the worker is ordinarily an employee. An employer, that controls expenses, generally retains the right to regulate and direct the worker's business activities
• Contractors pay their own incidental expenses

• The fact that the hiring firm furnishes significant tools, and other equipment tends to show the existence of an employer-employee relationship
• Usually contractors furnish their own tools, materials, and other equipment. If the hiring firm provides such items, they should be leased to the contractor at fair market rate

• Lack of investment in separate facilities, such as maintenance or rental of one's own office, indicates dependence on the hiring firm, and accordingly, the existence of and employer-employee relationship
• Contractors should be able to do their work without using the hiring firm's facilities. The contractor's investment in their trade must be real, essential and adequate

• Employees do not realize entrepreneurial profit, and are not at risk of loss as a result of their work
• Contractors should be able to make a profit or suffer a loss as a result of their work

• The hiring firm may restrict its employees from working for another firm, such as a competitor, as a condition of employment
• Contractors are not restricted from working for more than one firm at a time

• Employees work primarily for the hiring firm
• Contractors make their services available to the general public on a regular & consistent basis

• An employer exercises control through the threat of dismissal, which causes the worker to obey the employer's instructions
• An independent contractor, on the other hand, cannot be fired so long as the independent contractor produces a result that meets the contract specifications

• Employees have the right to terminate their relationship at any time without liability
• Contractors are responsible for the satisfactory completion of their contractual obligation, and may be subject to a penalty/legal action if they fail to complete the agreed upon work

In the 1970's there was a push to reclassify independent contractors as employees by the IRS, similar to what is happening today. Congress reacted to this by establishing Section 530 of the Revenue Act of 1978. This section established some safe havens that protect businesses from IRS reclassification, provided certain requirements are met.

The Section 530 safe havens have been the source of much controversy over the years. It is important to note that states are not bound by this act and that interpretations by the IRS have varied. The following is a brief overview of the section. Consult your legal counsel before determining if this section might apply to your situation.

Section 530 applies if an employer has:

1. Never treated the individual in question as an employee in the past.
2. Consistently treated the worker as an independent contractor on all forms.
3. Not treated any other workers holding a substantially similar position to the worker in question as an employee. (Must consider relationship of parties.)
4. Has a reasonable basis for treating the individual as an independent contractor. (*Note: The burden of proof has shifted to the IRS regarding reasonable treatment.) Some of the ways reasonable basis can be established include:

A. Acceptable precedent
- An employer can establish acceptable precedent in the following ways:

1) A judicial precedent
2) A published IRS ruling
3) An IRS technical advice memorandum pertaining specifically
to the worker
4) An IRS determination letter pertaining to this worker

B. A previous IRS Audit - It is not necessary that the audit being relied on was for employment tax purposes.
C. Recognized Long Standing Industry Practice - This safe haven is often very difficult to prove, though it has been used successfully. This can be a safe haven only if 25% of the company's industry classifies workers as independent contractors.

There are also other less common ways to establish reasonable basis under Section 530. It is important to note once again that the state tax authorities are not bound by Section 530 and will often disregard it.
NOTE:Commencing after 1996, the IRS must provide written notice of provisions of Section 530 at/or before an audit involving worker classification issues.

The following court cases and plaintiffs complaints illustrate the impact of the use of contingent workers in today's workforce:

• Vizcaino et. al. v. Microsoft Corporation ($97M Settlement)
• United States Department of Labor (DOL) v. Time Warner, Inc. ($5.5M Settlement)
• Wolf v. Coca-Cola
• Casey v. ARCO (Atlantic Richfield Corporation)
• Burrey v. PG&E
• FedEx