IRS 20 Questions
The Twenty Common Law Factors
- a test which may be used by the IRS-
Under the common law, a worker is an employee if the hiring
firm (the person or persons for whom services are performed)
has the right to control and direct the way he or she works, not only
with regard to the final result, but also with regard to the details
of when, where, and how work is done.
According to the IRS, it is not necessary that the employer actually
directs or controls the manner in which the services are performed; it
is sufficient if the employer has the right to do so.
our interpretation of the 20 questions posed by the IRS in order
for a company to classify a worker as a contractor.
1. Is the worker required to follow INSTRUCTIONS?
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
2. Will the worker receive TRAINING?
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
3. Are the workers services INTEGRATED into the business?
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
4. Are SERVICES RENDERED PERSONALLY by requirement?
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
5. Is the firm paying for ASSISTANTS SUPERVISED by the contractor?
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
6. Is there a CONTINUING RELATIONSHIP?
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
7. Are there SET HOURS of WORK?
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
8. Are FULL TIME work hours required?
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
9. Is the worker required to work ON PREMISES?
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
10. Is the ORDER or SEQUENCE SET by hiring firm?
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
11. Are ORAL or WRITTEN REPORTS required?
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
12. Is PAYMENT by HOUR, WEEK or MONTH?
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
13. Does hiring firm PAY for BUSINESS and/or TRAVELING EXPENSES?
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
Contractors pay their own incidental expenses
14. Are the TOOLS and MATERIALS furnished by hiring firm?
The fact that the hiring firm furnishes significant tools,
and other equipment tends to show the existence of an employer-employee
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
15. Is there SIGNIFICANT INVESTMENT by the consultant?
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
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
16. Is there possibility for REALIZATION of PROFIT or LOSS?
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
17. Can one WORK for MORE THAN ONE FIRM at a TIME?
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
18. Is SERVICE AVAILABLE to GENERAL PUBLIC?
Employees work primarily for the hiring firm
Contractors make their services available to the
general public on a regular & consistent basis
19. Is there a RIGHT to DISCHARGE?
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
20. Is there a right to TERMINATE?
Employees have the right to terminate their relationship at any time
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
Outsource your Contingent Workforce Management and Hiring to BRIDGENEX
As you can deduct from the questions above it becomes very difficult
to classify a worker as an independent contractor. Also as all
companies are subject to possible audit; it is very likely that
the IRS will re-classify consultants as employees during this
process which ultimately will force the employer to pay taxes
& back-tax on behalf of the consultants. Working with BRIDGENEX to manage
your Contingent Workforce and utilizing our consultants to work
on-site at your company removes the liability for re-classification, taxes,
The above questions are an interpretation by BRIDGENEX
intended to simplify the discussion.
To review the actual document produced by the IRS visit:
IRS 20 Common Law Guidelines