If the answer to any one of questions one (1) through five (5) is yes, STOP. The individual is to be treated as an employee for tax purposes.
Common law rules indicate a worker is an employee if the person for whom s/he works has the right to direct and control the way s/he works, both as to the final results and as to the details of when, where, and how the work is to be done. The employer does not need to exercise the control; it is sufficient that s/he has the RIGHT to do so. Because of the need to properly classify employees and independent contractors, the IRS has developed a 20 factor test designed to help employers determine a worker's status. THIS TEST IS NOT INTENDED TO PROVIDE A CONCLUSIVE DETERMINATION OF A WORKER'S STATUS, BUT SHOULD ONLY BE USED AS A GUIDE. (Form SS-8 can be filed with the IRS for work status determination.) The courts have found the following seven (7) of the common law factors to be especially important in determining whether a worker is an employee or an independent contractor.
- The degree of control exercised by the employer over the details of the workplace.
- A continuing relationship between the parties.
- The right to discharge the Worker.
- The Worker's opportunity for a profit or loss.
- The relationship the parties intended to create.
- Which party invests in the facilities used in the work.
- Whether the work is a part of the employer's regular business.
For each factor on the attached 20 Factor Test, determine whether A or B best identifies your relationship with the individual worker and mark the appropriate box. Situation A is usually typical of an employee-employer relationship and Situation B is usually typical of an Independent Contractor relationship. After completing the 20 Factor Test, if your determination is that the individual worker is an Independent Contractor, please read the following, sign and date the form. Maintain the original form in your files and forward a copy of the completed form attached to the request for payment to University Accounting, 304 Whitehurst.
If the individual is determined to be an employee for tax purposes and the individual wishes to be paid as an independent contractor, Form SS-8 may be filed with the Internal Revenue Service who will make the determination of proper classification.
I understand that should the IRS later determine that the Independent Contractor status was incorrect, and that the individual should have been classified as an employee, the department will be responsible for payment of any penalties or back taxes.