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 they work, 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.

Below is 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 buseness 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 suggest control over the worker, especiallly 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 business activities
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 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

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 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

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 employeer 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 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


Outsource your Contingent Workforce Management and Hiring to BRIDGENEX
As you can deduct from the questions above it becomes very dificult to clasify 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 durring 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-clasification, taxes, and insurances.

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