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When deciding whether a worker is an employee or an independent contractor, this 20-part test is one way - but not the only way - the IRS and many state agencies try to determine who controls the work. It's reprinted here as it appears in the newly revised Independent Contractors Guide from the National Federation of Independent Business.

1 Instructions
Employee: Provided with instructions from the business regarding when, where and how to perform the work.
Independent Contractor: Decides when, where and how to accomplish the services he or she is providing.

2 Training
Employee: Receives training directly from the employer, demonstrating that the business wants the services performed in a particular manner.
Independent Contractor:Receives little or no training from the business, but rather hiring is based on pre-existing proficiency or expertise in a particular line of work.

3 Services rendered by the worker personally
Employee: Personally performs any assigned duties.
Independent Contractor: Free to hire employees or subcontract tasks.

4 Set hours of work
Employee: Works hours established by the employer.
Independent Contractor: Retains the ability to set own hours.

5 Realization of profit or loss
Employee: Receives pay for time and labor only without realizing any additional gain or sharing in the risk of loss realized by the company based on the worker's services.
Independent Contractor: Personally stands to gain or to lose economically based on performance of his or her services.

6 Time required
Employee: Usually devotes their employment to the business; full-time employment could prevent the worker from engaging in other gainful employment.
Independent Contractor: Does not necessarily work solely for one business and remains free to pursue other projects.

7 Doing work on employer's premises
Employee: Performs services on the premises of the employer to the extent to which the nature of the services requires the work to be done on the employer's premises. If the business has the right to compel the worker to perform services at an alternative specified location, then the level of control remains the same.
Independent Contractor: Chooses where to perform the services.

8 Order or sequence of the work
Employee: Required to perform services in the order set by the employer.
Independent Contractor: Retains the option of deciding the sequence in which the work is performed.

9 Continuing relationship
Employee: There exists a continuing, non-sporadic relationship between the business and the worker.
Independent Contractor: Free to perform a service and then move on to other projects.

10 Hiring, supervising and paying assistants
Employee: May hire assistants only under the direction of the employer.
Independent Contractor: Free to hire, supervise and pay additional assistants or subcontractors as necessary.

11 Integration of the Worker's Services
Employee: Services are integrated into the daily success and operation of the business.
Independent Contractor: Services provided do not substantially affect the overall success of the business.

12 Oral or written reports
Employee: Submits regular reports to the employer for whom the services are being performed.
Independent Contractor: Accountable for end results only and not necessarily required to provide regular reports.

13 Payment method
Employee: Paid by the hour, week or month.
Independent Contractor: Paid by the project or on a straight commission.

14 Payment of business expenses
Employee: The business usually pays expenses for the worker.
Independent Contractor: Pays for own business and traveling expenses.

15 Furnishing of tools and materials
Employee: Receives tools and equipment from the employer.
Independent Contractor: Provides tools, equipment and materials.

16 Significant investment
Employee: Depends on the continued success of the business without taking on any investment in the working facilities or equipment.
Independent Contractor: Invests in facilities or equipment used to perform any services, showing that the worker is in business for himself/herself.

17 Working for more than one business
Employee: Restricted, either explicitly or effectively, from providing services to several businesses at once.
Independent Contractor: Free to provide services to multiple, unrelated businesses at the same time.

18 Availability of service to the general publIc
Employee: Provides services to only one business.
Independent Contractor: Offers services openly to the general public.

19 Right to fire the worker
Employee: Employer maintains the discretion to discharge a worker.
Independent Contractor: May not be terminated as long as the performance proceeds according to the agreed upon terms.

20 Worker's right to quit
Employee: Generally has the right to terminate the relationship with the business at any time.
Independent Contractor: Must fulfill any contractual obligations or else risk liability for breach.

Fines and back taxes owed when a worker is misclassified can be significant. Since classification standards can change, it may be a sensible precaution to seek advice from an accountant or business attorney.

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