Whether a person is an independent contractor or an employee generally depends on the amount of control exercised by the employer over the work being done. Dictating how a job is to be done or limiting the actions of the worker may establish an employer-employee relationship.
An independent contractor:
Operates under a business name
Has their own employees
Maintains a separate business checking account
Advertises their business' services
Invoices for work done
Has more than one client
Has their own tools and sets their own hours
Keeps business records
An employee:
Performs duties dictated or controlled by others
Is given training for work to be done
Works for only one employer
The Internal Revenue Service (IRS) relies on the facts in each case. It does not recognize the validity of any written agreement between the parties. Anyone can get a ruling from the IRS by completing Form SS-8. or more information, refer to the IRS Guide to Independent Contractors vs. Employees
For most small businesses, independent contractors should not be considered as substitutes for regular employees. Government agencies generally find that people in the work force are legally employees for tax purposes and the cost of being wrong, remitting unpaid payroll taxes, interest and penalties can be very high.
