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Common Law Test

March 10, 2008

Employees vs. Independent Contractors
The 20 Factors of the Common Law Test

1. Instructions:
Employees. An employee is required to comply with instruction about when, where, and how to work. Even if no instructions are given, the control factor is present if the employer has the right to give instructions.
Independent Contractor (“IC’s”). IC’s determine on their own on how they will proceed in accomplishing an assigned task. An IC is under no obligation to comply with instructions as to how to perform an assigned task, only that they accomplish it.

2. Training:
Employees. An employee is trained to perform services in a particular manner.
Independent Contractors. IC’s ordinarily use their own methods to accomplish the required task and receive very little or no training from the party which retains their services.

3. Integration:
Employees. An employee provides services that are an integral part of the employer’s operations.
Independent Contractors. IC’s services are generally not part of the core operations of the engaging party.

4. Services rendered personally:
Employees. Employees are personally required to perform their services and may not assign another individual to perform their tasks.
Independent Contractors. IC’s may or may not personally render the required services, as they are permitted to engage others to do the work.

5. Hiring assistant:
Employees. An employee works for an employer that directly hires, supervises, and compensates the individuals performing the work. Employees do not hire assistants to help perform the required task.
Independent Contractors. An IC may hire, supervise, and pay assistants under a contract that requires the former to provide materials and/or labor, and is responsible for the contracted results.

6. Continuing relationship:
Employees. An employee has a continuing relationship with an employer on what is hoped to be a long-term basis.
Independent Contractors. IC’s typically enter temporary relationships and move from assignment to assignment.

7. Set hours of work:
Employees. An employee has set hours of work established by an employer.
Independent Contractors. IC’s are masters of their own time; they set their own hours of work.

8. Full-time work:
Employees. An employee normally works full-time for an employer.
Independent Contractors. IC’s work when and for whom they choose; and may be engaged by more than one entity at one time.

9. Work done on premises:
Employees. An employee works on the premises of an employer, or works at a location chosen by the employer.
Independent Contractors. IC’s typically work off the engaging firm’s premises, unless the particular tasks need to be done at the engaging firm’s place of business.

10. Order or sequence set:
Employees. An employee performs services in the sequence set by an employer, a manifestation of the employer’s direction and control over the method used to perform the work.
Independent Contractors. IC’s decide the method to be used in performing the required task, including the sequence of activities.

11. Reports:
Employees. An employee submits interim reports to an employer to keep the employer informed as to the method being used to perform the work. This reporting obligation tends to demonstrate that the individual is subject to direction and control.
Independent Contractors. IC’s generally do not submit interim reports; they are only responsible for reporting completion of the work.

12. Payments:
Employees. An employee is paid by the hour, week, or month.
Independent Contractors. IC’s are normally compensated by a flat rate for a project or a manner different than the engaging firm pays its employees. However, if the general practice in certain trades and professions is to pay on the basis of a unit of time, the method of payment will not be given great weight.

13. Expenses:
Employees. An employee’s business and travel expenses are paid for by an employer.
Independent Contractors. Typically, IC’s pay their own business and traveling expenses. However, it is customary in certain trades and professions for IC’s to bill their clients for disbursements such as travel, photocopying and other incidental expenses. Payment of disbursements in addition to the fee for services, does not create an employment relationship.

14. Tools and materials:
Employees. An employer furnishes employees the necessary tools, material, and other equipment needed to complete the task.
Independent Contractors. IC’s generally furnish their own tools and materials.

15. Investment:
Employees. Employees generally have no investment in equipment or facilities. This demonstrates a lack of interdependence from the hiring firm and is additional indicia of an employer-employee relationship.
Independent Contractors. IC’s have an investment in the equipment and facilities used in their line of work.

16. Profit or loss:
Employees. Employees are typically paid for their time and labor and are not responsible for ensuring that their revenue exceeds their expenses.
Independent Contractors. For an IC, a given assignment presents an opportunity for a profit (revenue exceeding expenses) or a loss (expenses exceeding revenues). In other words, there is risk and reward associated with being an IC.

17. Works for more than one person or firm:
Employees. While an employee can have more than one job at a time, employers can demand exclusive employment and prohibit an employee from working for another employer.
Independent Contractors. IC’s usually offer their services to multiple, unrelated entities at the same time. Having more than one client or customer at a particular time is persuasive evidence of IC status.

18. Offers services to general public:
Employees. Employees offer their services only to their employers.
Independent Contractors. IC’s offer their services to the general public.

19. Right to fire:
Employees. An employee can be terminated by an employer.
Independent Contractors. An IC can be only terminated in accordance with terms of the agreement of engagement. For example, an IC who fails to perform in accordance with the contract terms is in breach, which may be a basis for termination.

20. Right to quit:
Employees. An employee can quit his or her job at any time without incurring liability for uncompleted tasks or assignments.
Independent Contractors. An IC usually agrees to perform a specific task and is responsible for its satisfactory completion, or is legally obligated to take responsibility for the damages caused by their failure to complete the job.

Information courtesy of: What Every Business Manager and HR Professional Should Know About Federal Labor and Employment Laws

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